Seven Rational Things to Do When Financial Panic Hits

I originally included this email in the reader mailbag this morning, but my answer to Susan’s email (below) went on so long that I thought it warranted a post of its own.

Yesterday my husband found out he has lost his job. We don’t know what to do.

He was making $38,000 a year as an IT specialist. I make about $36,000 a year as a school teacher. We have about $10,000 in credit card debt spread across three cards and a $1,300 a month mortgage payment. We don’t have anything saved either other than some retirement account money.

I am so scared we are going to lose our house and lose everything! What do we do? Help!

First and foremost: don’t panic. No problem is solved well in panic mode. Bad choices – choices that you’ll regret down the road – are made when you panic.

Take a deep breath. Here are seven things that you should attempt to do in the coming days.

Be proactive. Some people “turtle up” in bad situations like this and spend their time avoiding the problem, doing things like playing video games and watching television. Now is the time not to do these things to excess.

Instead of withdrawing, fill as much of your time as you can with one simple question: what can I do right now to fix our financial situation? Don’t turn away from the problem – grab it by the horns.

Get that second paycheck back as soon as possible. Your husband needs to find work quickly and get back in a situation where there is a second stream of income coming into your home. He should not be picky at this point. Look for a job in retail where there is often work available for people.

Once he has that in hand, he can then spend his spare time searching for a job that matches his resume and skill set. However, it is vital that you not “hold out” for a better job right now. If you do that, you are going to dig yourself into an even worse hole than you’re in right now.

Cut all unnecessary services. Yes, that means canceling the cable. That means canceling the cell phone. That means canceling the internet – you can access it in the ways that you “need” at the library. Cancel Netflix. Cancel any and all extra services that don’t cover your basic living needs.

This sounds painful, but you need to pare down to nothing before you start putting extras back into your life. Cut, cut, cut. When things smooth out later on, you can restore those services that you find that you actually missed.

Clean out your closets. Look for things that you don’t use every day that are sellable on eBay or Craigslist. Look at your collections as well – do you really need all of those DVDs or CDs or whatever else you’ve accumulated?

You might be tempted to hold onto things for sentimental reasons, but ask yourself this: what sentiment is being represented by stuffing something into a box in the back of your closet?

Prioritize your debts. Obviously, it’s better if you pay off your debts, but if you have to make a choice between which payment to cover each month, put the priority on the ones that have collateral – like your mortgage – over the ones that do not.

Yes, that means skipping some payments on your credit cards if you need to. It’s a better option than losing your house.

Cut each other some slack. Times are tough right now and there may be a tendency for each of you to want to blame your partner for the situation you’re in. Here’s the truth: both of you are to blame and it will take both of you to get out of it.

Do not blow up and turn on the one person who’s in this situation with you. If you’re angry, channel it into something else.

Utilize friends and camaraderie in your time of need. Don’t be afraid to talk to your true friends about your situation. They may have ideas and resources that you never expected them to have that can make your situation far better – anything from a job lead to dinner invitations.

Remember, the purpose of a friendship (in part) is to help each other in times of need, and this is certainly a time of need for you. Don’t be afraid to open up.

Finally, don’t forget this moment. It is so easy to make short-sighted choices when things are going well, but Murphy’s Law catches up to us in the end. It is always better to spend a little less now to have a little bit more buffer later on.

Good luck.

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62 thoughts on “Seven Rational Things to Do When Financial Panic Hits

  1. Molly says:

    And for Susan herself, continue to work hard at your job to keep that paycheck!

  2. Frugal Babe says:

    Excellent advice. Another possibility would be for the wife to double check her W4 at work. She might have already been having her taxes over-withheld, and now with a lower household income she’ll likely be in a lower tax bracket anyway. A little extra money in each paycheck will help them now a lot more than a big refund a year from now.

  3. Deborah says:

    Great advice, especially the canceling everything you don’t need to live. I just did an eviction where the tenant lost her job and just couldn’t pay the rent. We worked hard to help her out but she wouldn’t even return phone calls. Now that I have the house back, it is obvious that she still had high-end cable, cell phone, more magazine subscriptions than she could possibly have read, etc. It looks like at no time did she accept the reality of what was going on. Even on unemployment, her rent was only about 35% of the household income. That should have been possible.

  4. Nicole says:

    Economist here– disagree on the second paycheck at any cost.

    If he qualifies for unemployment, you may want to focus on the job search until at least you can find a new job that beats your unemployment check. Finding a good job match is a full time job and you will have better luck if you’re focused and spend time finding that good match. Minimum wage jobs can exhaust you and derail a good job search. Use that unemployment– you paid for the insurance while you were working for a reason. Sign up for unemployment ASAP. If no unemployment, then it does make sense to get a p/t job of any kind if you need to.

    Start networking like crazy. Most jobs are found through networking. Talk to everybody and ask for contacts. Do informational interviews with companies you might be interested in working for. Look at it as an opportunity.

    Now, Susan might want to look into a second source of income, like tutoring.

    Don’t cancel the cell if you don’t have a land-line. You need a phone number to get an interview. Do cut to a lower cost cell phone plan if you can, or at least negotiate with your current one. Negotiate lower rates for your credit cards as well and any service you don’t cut.

  5. Kerry D says:

    For sure, keep breathing slowly–all is not lost and there is a lot you can do. Trimming every unnecessary expense and changing withholding at your work will do a lot. We’ve lost a good portion of our income this past year from my contract teaching, and I’ve most recently cut our food bill (family of 5, all 3 kids are hungry teenagers) down by about 40% by cooking everything from scratch, making my own dough for pizzas (very popular) and stocking up on items we use, when they’re on sale. Even with the savings, I’ve managed to build a fair pantry up. We’ve all learned a lot–most recently the 18 year old cooked a valentine dinner for his girlfriend, rather than eating out!

  6. Valerie says:

    Great tips — I was surprised you didn’t mention “What Color is Your Parachute.” Another thing, I recall particularly from Anthony Robbins one statement that applies well here (and I paraphrase):

    “What you focus on expands.” – So if you focus on losing everything — you just might. BUT, if you focus on what can you do as a couple to regain your financial footing, you probably will. Focus on the positive and it will expand, and you may gain some other benefits along the way (loving support, appreciation for a great partnership, creative use of time and resources). Our thoughts for a great rebound are with this couple!

  7. The “Cutting Each Other Slack” advice is HUGE!!! My wife has been great since I lost my job–and it’s been awhile….Nobody wants to be out of work. Working as a team is really important in trying times.

    Plus, we’re just too poor for a divorce….

  8. J says:

    While I like the overall theme, the reactions seem a bit panicky in and of themselves. Susan and her husband are hiking through the wilderness and he just broke his ankle. The first step should be: stop, sit down and make a PLAN.

    Since this is a financial problem, this will be worked using a budget and setting priorities. Based on her salary, they will have about $800 left over per month after paying the mortgage (very rough calculation — (36K/12*.7)-1300. She also doesn’t mention if there is a severance package or what unemployment insurance will pay in their area — it can make a huge difference when you are really trying to get by.

    Once they put together that information, they can prioritize the remaining expenses top (food, utilities) to bottom (vacations, etc) together and start working the problem. There’s no need to go out and cancel everything, and there might actually be significant downsides to canceling everything — early termination fees and the like. Her husband should definitely keep on looking for another job, but really, cutting out the Internet (maybe dial-up is an option? Maybe there is a slower/cheaper connection? Maybe they can mooch/trade for a neighbor’s wireless?) and basic phone service (cell or landline) can actually hurt during a job search.

    Above all, yes, use this as a turning point in your life and use it as an opportunity to move onto a better career/living situation if it’s possible. Or use it as the means to start doing your own thing — as an IT person he may be able to strike out on his own doing PC repairs and installs (a la the Geek Squad).

  9. DiscoApu says:

    Also get him on the teachers health insurance so that he doesnt have to pay for cobra. #4 Nicole is right about collecting unemployment first.

  10. J says:

    I meant to say “cancel everything blindly”. They will most likely have to cancel some things, but they should go about it in a rational manner.

  11. Katie says:

    Why the line about fault?

    I think the question writer acknowledges her and her husband’s faults. No need to fuel that fire.

    The line about tutoring made me laugh – the wife is already working full time!

  12. Eve says:

    Instead of saying that both of you are to blame, I would say neither of you is to blame. The layoff is not Susan’s or her husband’s fault.

    Personally, I would put my house up for sale in that situation, and move into a smaller, less expensive rental. If you’re able to get some money out of the house, you can use it to pay down the credit cards. Even if you end up breaking even or taking a loss on the house, you eliminate the fear of “oh no, we might lose our house” by simply accepting it as reality. You can sell furniture and other items that won’t fit in the new place. And it may be easier to give up the creature comforts such as cable and internet if you don’t feel like you have to keep up with the Joneses in your old neighborhood.

  13. Karen M. says:

    Hmmm… the answer sounds like a Chicken Little response. Is the sky really falling here? Not really.

    First, get thee to the unemployment office. That will probably be a better paycheck than the local WalMart. Use the time on unemployment wisely, but by all means use it.

    Second, beware of what home services you cancel right away. Some contracts have a financial penalty for early termination. Before you incur that fee, I would call the phone company, internet company, whoever, and explain the situation and see what kind of bare bones plan they can get on rather than pay a termination fee. Also, if you plan to make money selling on eBay or CraigsList, don’t cancel your internet. And as others have mentioned, you will need a phone to get a job.

    Third, getting laid off is no one’s *fault*. The financial situation at home– cc debt, no savings–can be attributed to both of them, but the phrasing did come across as blaming the victim(s).

  14. J says:

    Yeah, I’m going to skip the retail job suggestion. The husband has some sort of an IT skill set. He could look for work in any number of places. 38K translates into $20/hr rate (roughly). There are plenty of (admittedly unglamorous) IT jobs that can match that hourly rate, or at least get close. Machine rebuilds, hardware troubleshooting, etc are all valuable skills that are even more important now that companies are looking to stretch their IT budgets — in many cases it now pays to have someone troubleshoot old machines to keep them alive a little longer.

  15. Sam says:

    @Eve #12 – The reason this situation is their fault is because they are completely unprepared. They are carrying a large amount of credit card debt and have no emergency fund. If they didn’t have credit card debt and had built even a small emergency fund then there would be no reason to worry.

    I think many of the other comments are correct, they need to check into unemployment first. Also, there may be some sort of severance package that hasn’t been mentioned by Susan. I think the main thing is to be calm and use some common sense.

  16. J says:

    Yes, Sam, but that’s a “shoulda woulda coulda”. They have a now that needs dealing with, and bickering about the shoes she bought last month and the table saw he got last week isn’t going to get them anywhere productive. Or who knows, that CC debt could be from medical expenses that were unavoidable. Or maybe they had an emergency fund and they depleted it. You don’t know. The only useful thing the past can do at this point is to provide a painful list of things NEVER to do again, EVER. They need to get out of the hole together.

  17. Bill says:

    Get a resume together and apply for jobs.

    In the meantime, check out the local business. Some might be willing to pay for a weekly visit to straighten out their small IT needs. Print up some business cards and hit the pavement. Also, go to the nearest hospital and check in with their IT department. Medical IT is not suffering like the rest of the economy.

  18. KittyBoarder says:

    I am in IT and I know IT is still in demand of skillful workers. Also I personally think anything less than $60K in IT field is not a good pay. College kids who have zero experiences get $50K or $60K in most areas…
    The IT professionals I know all make above $70K. So I think the best bet is to beef up your resume and look for a good IT job. They are available out there if you look harder…

  19. chacha1 says:

    I’m in favor of the hubs getting some major word-of-mouth going on freelance gigs. IT is an extremely flexible field and if he picks up new skills quickly, could be a lifesaver now and a great sideline in the future.

    Make a resume that lists the assembly and installation skills, software packages he’s familiar with, and projects he’s completed (and led, if applicable). Then ask contacts at the previous employer for letters of reference. Then ask friends if they need some free computer troubleshooting, and after you fix them up, ask them to be a reference for you.

    All of that will come in handy for the “real” job hunt as well as provide something constructive to do now that may generate some income.

    All that said: losing the house is not the worst thing that could happen. Keep the car(s) and yourselves healthy and DON’T add to your debt. Good luck!

  20. Gretchen says:

    Even before I read the other responses, I thought : unemployement, not just a “retail” job and looking for a job in the spare time.
    I would think an IT guy could do some freelancing.

    Also to #12 why would they sell their house? For one, that assumes someone will buy it. And quickly. No one’s saying he’s never going to find a job again. This job loss just happened, I assume.

    I’d also cancel the land line before the cell phone.

  21. George says:

    “put the priority on the ones that have collateral – like your mortgage – over the ones that do not.”

    I’m not sure on this advice anymore due to the new bankruptcy law. If there’s a chance that you’ll go bankrupt, then you’ll still be stuck with the credit card debt AND it will be at a higher interest rate. Whereas you’ll lose the house, but at least you won’t be saddled with it after declaring bankruptcy.

    So… make the minimum payment on the credit card debt and don’t add to that debt!

    Utilities (electric, gas, water, & garbage) are far more forgiving of temporary nonpayment.

  22. justin says:

    Fist off, Nicole, people like you are the reason are country is in a mess. Everyone thinks the government should do everything for us… maybe you should go live in russia where you belong.

    Also, its hard to sell things on ebay, when you cancel your internet.

  23. Robert says:

    “The job I applied for has been taken down from Monster.com.
    What do you think?”

    Unfortunately, employers will sometimes interview just for the sake of interviewing. One reason is because they want to see “what’s out there” for the future; another is if they are a large organization and are required to interview for open positions every so often. So they interview people even when they have no intention of hiring.

  24. BD says:

    If you have an extra room in your house, think about taking on a renter. If you can find a good student or responsible adult to rent a room in your house to, it’s a good way to pull in some extra income without having to do much.

  25. beth says:

    I definitely would agree with some of the other posters stating that Trent’s responses seem a little panicky themselves.

    It would seem to me that the first thing everyone needs to do is STOP. Step back, take a breath. Take a day to get to the unemployment office and get through that paperwork (or do it online if possible to avoid the extra agony of sitting in the lobby). Inventory the pantry for food for the next month (time to start thinking creatively). Call some of the more expensive utilities and let them know your situation– most will let you stretch a month over the next few upcoming months if you’re tight. Head to the local temp agency and sign up; a day’s worth of work plugging in new computers or counting inventory always helps the bills. Type up those business cards, come up with an agreeable hourly rate and offer yourself out for a little freelance IT work.

    Once you’ve gotten through the first week of grief and organizing, *then* jump in to Trent’s suggestions of making the more painful cuts, re-prioritizing, and full-time job hunting.

  26. Nicole says:

    Justin, unemployment is INSURANCE. It isn’t a government handout. You pay for it when you’re employed through lower wages (technically your employer is paying it, but if they weren’t they’d have to pay you higher wages to compensate for the risk of unemployment) so that it’s there if you lose your job through no fault of your own.

    You can argue that a person shouldn’t take TANF or EITC, but if you pay for unemployment insurance (or, similarly, worker’s comp), then you should use it. Not taking it is like refusing to let your health insurance company (that you’ve been paying premiums to) pay your medical bills or not letting your car insurance company (again, that you’ve been paying premiums to) pay out if you wreck someone else’s car. If that’s how you want to live your life, go ahead but I don’t see how letting companies keep your money for something you’ve paid for is benefiting anything.

    And if you want to get deeper, the reason unemployment insurance is mandated is because everybody is better off when it is. Companies want it (they like workers to be less likely to sue or make a media stink if laid off), but only if everybody else is forced to pay for it too. If it weren’t mandated, adverse selection problems would prevent the market from existing and everybody would be worse off. Companies love worker’s comp too.

    If you’d like to learn more about the economics of government, when there is or isn’t a role for government intervention, I strongly recommend the undergraduate Public Finance textbook by Jon Gruber (which I teach, btw). These are interesting and important issues, and it is important to think them through yourself with all of the facts at hand.

  27. cathleen says:

    Good tips, EXCEPT cancel the internet!
    Telling an IT professional, or any job seeker for that matter, to cancel internet makes zero sense IMO.
    It’s your LIFELINE to a good job. Basic internet can be very inexpensive. For some people less than it would cost to get to a free library internet.
    And you can search for jobs late at all hours as well as be contacted at any moment. The jobs out there are going to tech savvy and tech CONNECTED people. You may have 5 minutes to reply to an email. After that, they move on to the next candidate…

  28. spaces says:

    I suggest leveraging unemployment: In my state, unemployment insurance benefit payments are not offset by work dollar for dollar. Rather, benefits are paid up until someone earns wages equal to 125% of their weekly benefit amount. What this means is that you can earn up to roughly $100 per week without reducing your UI payments. I suggest that Susan’s spouse research this and figure out what he can earn without reducing his UI payments, and use that as his target for a weekly earning amount at a menial part-time job.

    I also suggest that the husband get straight to work on low-investment home projects that will make the home run smoother, more efficiently and more cheaply. Seal the cracks, cook from scratch, that kind of thing. He can contribute small savings daily to the bottom line for the family through his attention and labor, which can really add up to a big contribution over time.

    I would not throw all my time into a menial part-time job if there’s any way for the family to avoid such a move. Rather, work the first part-time job he can find to the point that the dollars in are maximized, and then he can turn the rest of his energy towards finding a good job in his field and optimizing the household.

  29. Joseph says:

    Good suggestions, all. But before you cancel your internet, try talking to a nearby neighbor who has a wireless router. They may let you temporarily use their network for internet access until you land a job. In return, be a nice user and don’t hog their bandwidth.

  30. Adam says:

    If he is willing the census is hiring. It might provide work and a paycheck for at least a little while.

  31. kristine says:

    I agree about not losing the internet. The time wasted going to and from the library, and waiting your turn, is substantial. Not to mention the 24-hour lag in reaction time could lose an opportunity. An IT pro does not look pro if he does not respond almost immediately to a pro opportunity.

    Ditto also cell termination fees- caveat!

    He can try teaching IT at a tech college, too! Or advertise on Craigslist to teach IT for 30 an hour.

  32. I would take a hard look at your definition of the word “unnecessary” as well.

    Depending on the severity of the situation, wouldn’t everything but food and a roof over your head (and maybe heat) be considered unnecessary?

  33. deRuiter says:

    Susan can get a part time job until the credit cards are all paid and they have a generous emergency fund, cntinuing part time work even after the husband gets a job. Many people who do not have government employment have second jobs, some work almost two full jobs. Teacher’s have a large amount of free time compared to regular workers, think three months in the summer, a week at Easter, a week at Christmas, weekends free. Frankly, the two of them did nothing to prepare for a financial problem. I’m not impressed until they both have part time work, he has his unemployment, and they begin to clean up credit card debt and save. 1. Sell everything portable that isn’t a mattress and pots, pans, dishes, 2. rent out the spare room / rooms, 3. rent out the garage, 4. get part time jobs, 5. start saving, 6. stop spending.

  34. littlepitcher says:

    Keep the unemployment. Retail is just as unavailable in this economy as everything else, and the jobs with constant turnover often are jobs where the boss is impossible. A bad reference from a bad boss is something you don’t need directly after the layoff.
    Cut the junk food budget and keep the Internet. You will need it for networking, as well as for job boards.
    Use public transit for job search (buy a monthly card with unlimited use) and keep your gas for interviews. Rerate the job-seeker’s car for pleasure use only, since you’re not actually driving to work.

  35. Steffie says:

    First of all you both must stop and breathe. You need some time to get mad that the job is gone, sad that the job is gone. Grieve but don’t blame and don’t beat yourself up. You now know the mistakes and you can learn from the experience. You have some time before you lose the house, provided you are up to date on the mortgage payments. Do not stop taking care of yourselves, eat meals at the regular time, try to maintain some of the same schedule especially getting up in the morning. If he still has medical insurance go to the doctor for a physical, you may not get another chance for awhile. And do not forget to show love to each other, mentally and physically. You both are going through your life changing and human contact can make a bad situation tolerable. Plus after things get better you won’t need all that anger and resentment hanging around.

  36. Anthony says:

    I only glanced through the comments, so I don’t know if this has already been mentioned.

    Why panic at all? She makes $36k/year. That’s approx. $2100/month take-home. Minus $1300 for mortgage is $800 for all other debt and bills. There’s no mention of what the minimum payments are for the credit cards. But even after credit card payments and food (presumably the budget for food is now lowered), there should be plenty of money left every month.

  37. Jane says:

    I thought this was excellent advice. My brother-in-law just lost his job, and I am concerned because they have done NOTHING to adjust their spending. He is also not actively looking for a job of any kind, just relying on unemployment and severance and treating this time as a vacation. Another brother-in-law of mine was unemployed once for over six months, and they went deeper into debt the whole time. They never canceled their cable or cellphones. He never looked for a lower paying job (because it was “beneath him”), and five years and a divorce later they both are in horrible financial shape.

    Yes, the reader’s wife still has income, but especially in this recession, you need to cut to the bare bones immediately and think worse case scenario.

    @Anthony
    Their mortgage payment is more than ours, and my husband makes $75,000. We do okay, but we still have to economize. Long term that mortgage will be a serious liability if he doesn’t find work. It’s over 50% of their take home pay at the moment. That’s not good. I think panic would be counter productive, but you don’t paint a very realistic picture when you say that there would be “plenty of money left every month.” That’s just not true.

  38. Sandy says:

    I agree with those who say to slow down and do “technical things” the unemployment paperwork,cutting expenses etc…
    Actually, without children in the picture, their sole focus should be on making more cash for cash flow. They don’t have to concern themselves for childcare, etc…, so they each have 24 hours to earn $$ (outside when the wife works). Perhaps he could take an evening job that leaves his days free for interviewing and making connections. Perhpas she could tutor after school. Weekends seem to be available for both of them.
    A long time ago, I lost my job. I started working almost immediately for a temp agency working the night shift at a factory, worked on “real” job hunting during the morning and early afternoon, and slept in the evening hours. It paid all those bills until my jobhunt ended and I got a job. It’s not ideal, but that’s why they call it “temp”!

  39. J says:

    I was actually thinking of another thing last night on my way home, specifically for the husband’s situation. I am an IT professional who was laid off in 2001 and was out of work for seven months. One of the biggest (and coolest) things you get out of losing your job in IT is the ability to re-define and re-cast yourself, for short money (or no money). You now have one of life’s most valuable things: TIME.

    Match up this now-bountiful amount of time you have with another thing that is wonderful — Open Source. There are a bazillion Open Source products in commercial use in IT, and now you have the time to actually set them up, tinker with them, read books on how to use them, work examples, etc. It’s all free to download and use, so if you have an Internet connection and a PC you are likely in business. If you are like most people in IT, you likely have a couple of PC’s sitting around so you can have a “test box” you can tinker with — install Linux, get Apache working, write some PHP, set up a content management system — the list goes on and on and on.

    This leads right to beefing up your resume and letting you look for a BETTER job than the one you had!

    Also with this time (and the onset of spring) it’s the perfect time to start working out — all you need to do is go outside and enjoy yourself! Soon enough you’ll be back to the corporate grind, anyway — so take advantage of this while you can.

    Oh, and if you don’t know how already, learn how to cook, clean and go grocery shopping — provide some wife support since she’s bringing home the bacon now!

  40. First off, thank god for the Nicole’s in the world to provide us with the facts!
    If he can get unemployment insurance- go get it!
    I was in the construction business and my backup plan if I got laid off was to go volunteer at Habitat for Humanity. My thinking was to collect unemployment insurance, look for a job and keep myself out there doing something for the community.
    Cutting each other slack is great advice. It more important than ever to be supportive of each other.

  41. Ms. Clear says:

    If I were in this situation, I would try and cut my budget to the point where we could make it on one salary and use unemployment to pay down debt and build up an emergency fund. I also second the suggestion to sell whatever you can to pay down debt and cut whatever you can out of the budget, to lower living expenses and cut debt is possible.

    The true unemployment rate (U6) is up around 17-18%. Jobs are not easy to get, even crappy ones. My hubby hasn’t been able to find much at all, beyond a seasonal gig that it’s looking likely he’ll be back to in the spring or summer. We don’t get any benefits either, because he graduated from school and couldn’t find a job. Seasonal work doesn’t give unemployment benefits.

    Our solution is to make one-income living work and to get rid of all debt. Now that seasonal money is cooling its jets in a savings account and I’m plowing big portions of take home pay in as well.

  42. Tammy says:

    My husband quit his IT job about 1 year ago, so we were not eligible for unemployment. (Talk about jumping out of the plane without a parachute…but it was a pretty desperate situation). I did a lot of financial hyperventilating for a while. The clock was ticking until our disability insurance money ran out.

    After weeks of actively searching for another comparable IT job in our little rural area, we decided to start our own computer repair and website design company. It hasn’t been easy…my husband has been working like crazy, but we’ve replaced 2/3 of that missing paycheck and my husband is SO much happier being his own boss.

    We could have decided to move to the city, but that corporate IT environment was just not right for him. I’m very proud of my husband…and that event which seemed so negative at the time was actually a catalyst to make us do something better, that we never would have considered trying otherwise.

    Good luck to you!

  43. Brittany says:

    “Teacher’s have a large amount of free time compared to regular workers, think three months in the summer, a week at Easter, a week at Christmas, weekends free.”

    I’m guessing from your inability to pluralize and utter lack of understanding of the time demand of teaching, you aren’t a teacher. I work 45-50 weeks (plus a second job). My roommates who are teachers work 7-4 (yeah, they’re getting off earlier than you 9 to 5ers, but they go in earlier), and then come home and grade or prepare lessons/activities until 9 at night and most of the weekend. Yeah, we get school breaks off, but we also get no vacation/personal time (so while other workers get 3 weeks of paid vacation to use when they please, we get a week at spring break and two at christmas, for example). Summers are spent in professional development. Yes, it’s possible to get a second job while teaching, but it’s just as difficult (if not more so, in many cases) as it is for other workers. This doesn’t even touch the time demand of coaching or being involved in extracurriculars. Actually, come to think of it, that might not be a bad place for her to look for an income boost, depending on what level she teaches–most schools pay an extra couple thousand for running sponsored clubs, which could provide a little income booster or emergency fund starter.

  44. Bethany says:

    I don’t think it’s a lead pipe cinch that mortgage payments come before credit cards. It depends.

    If you are seriously underwater on your home, then I would pay the credit cards first. If you have a goofy mortgage (high-interest ARM, interest-only, etc.), then I would pay the credit cards first.

    A friend of mine is unemployed. He refinanced about 5 years ago, at the height of the bubble, into an interest-only loan. Now their townhome is worth $40K less than they owe on it. Even if he got a job again, they would have a hard time making the payment when the loan recasts to include the principal, and since they are upside down they wouldn’t be able to refinance. I think they should pay the mortgage last.

    I hope this is not the situation Susan and her husband find themselves in – and there are no indications that it is. But I just wanted to make the point that “prioritize your debts that have collateral” is not a universal rule. Not anymore.

  45. Shevy says:

    Like many others, I think Trent’s response was actually the opposite of the calm, reasoned approach he presented it as.

    The bottom line, which no one else has addressed is that this happened *yesterday*. It didn’t happen 6 months ago or even 6 weeks ago. There has been no impact that Susan and her husband can actually feel yet. They’re just having a pure fear reaction.

    So, deep calming breaths. Do the paperwork for EI (or unemployment or whatever it’s called where they live). Look at all the current expenses and see what can easily be cut (satellite or digital cable, Netflix, landline, any other ongoing expense that doesn’t contribute to keeping a roof over their head and food on the table or keeping them protected or where removal of the expense would impede his job search).

    That specifically means don’t take a minimum wage job unless you are ineligible for EI or your benefits have run out because it would be a) less money and b) tie you up for 8 hours per day when you should be out there interviewing and c) will not be a plus in landing the next job in your field.

    Ditch the landline but keep the cell. You need to be constantly reachable. Ditto, don’t ditch internet unless you reach a point where you really have to. As others said, you’re in IT. If you unplug from the net you are *far* less likely to get hired unless you’re planning on monopolizing a computer at the library all day, every day (and the other people wanting to use it may have something to say about that!). Besides, why spend money to get to and from the library every day? Save the money for gas or bus fare to your interviews.

    Look for places to cut back at home. Plan your meals around weekly specials, shop from a list, stop eating out. Is either one a smoker? Now would be a great time to quit. Don’t buy booze. Look for ways to cut energy usage and utility costs. Temporarily stop contributing to retirement accounts unless Susan has a plan that includes matching, in which case she should just contribute the amount necessary to get the match. If EI runs out, consider stopping those contributions too.

    Just don’t panic. There are many things you can do without selling your house or every possession except for a few dishes, clothes and a bed! Start cutting now. See how you do over the next couple of months. Cut back more if necessary. When your benefits are about 6 or 8 weeks away from running out is the time to start making the really drastic cuts.

    I liked the idea about learning new Open Source stuff and re-inventing yourself into a better job. Far, far better than sitting around playing WoW while you wait for an interview!

  46. J says:

    @Shevy — When I went on interviews for the job I eventually landed (and I’m still at the same employer now), the “I stayed home and learned Perl/Linux/Apache/MySQL” story was a GREAT one to tell perspective employers to the “how do you stay current” question you inevitably get in interviews.

    I agree also that they don’t need to panic now or ever, really — this is pretty much a straight numbers problem where they can make reasonable predictions for the next 3-6-12 months, and come up with plans for what to do — even if those plans involve hard decisions like selling their house, moving, selling cars, relocating, etc. Just because it’s a hard decision doesn’t make it panic.

    They need to sit down for a couple of days and write down some plans, run some numbers and figure out how to get through it. Time spent selling stuff to the walls on eBay and CL is time you won’t get back — and it can likely be put to better use, at least for now.

    If there are obvious “big wins” (think > $50-100 per item) sitting around, sure — sell them off and do something useful with the money. Otherwise, the husband should be polishing up that resume till it shines, working his networks (FB, LinkedIn, etc). If he’s looking at craigslist, it should be to find work — either one time gigs or permanent employment. Selling CD’s at $2 a pop may help to give you something to do, but at this early stage there are really better uses of his time. Like making a written plan.

  47. Sam says:

    @J #16 – I never said they need argue over who spent what or bicker about anything. Eve said that the situation isn’t Susan or her husband’s fault because he was laid off. I’m saying it is their fault. I don’t care who spent the money, carrying $10,000 in credit card debt and have 0 emergency fund is not a good place to be in, but they let themselves get there somehow. The overall situation is their fault – getting laid off may not have been what they wanted, but who does? That’s why you have an emergency fund set up to help you when things like this happen – even if carry credit card debt it’s important to have an emergency fund because when do-do hits the fan you can still make minimum payments on everything if you have to and stay afloat.

  48. Evita says:

    Trent, please show some kindness. A derogatory, haughty comment such as “Here’s the truth: both of you are to blame” to a panicky reader asking for help it not a nice thing to do. Does she really need any more humbling?

  49. J says:

    @Sam — I’m very familiar with the purpose of the emergency fund, having kept and maintained one for some time. I have not carried a credit card balance in years.

    Sure they are at fault, in the end we are all responsible for our own actions. Worrying about fault and blame is pretty much a waste of time for them at this point since you can’t have a do-over, you can just improve the future with the resources you have.

  50. christine a says:

    @Valerie – I’ll second “Our thoughts are for a great rebound for this couple”
    @ Molly on Money – volunteering is a great idea – it means you still have practice in getting up with the alarm, you meet a whole new group of people which is good for morale, and you’re fresh on the days you’re not volunteering to really focus on your job search.

  51. Nicole says:

    Seconding volunteering– one of my students has a research paper showing that volunteering increases the probability that resume will result in an interview. (Though the paper looks at entry-level women, not male IT people, so it might not generalize… but I doubt it would hurt.) Plus volunteering is a great way to network. If you do a good job on something related to your skillset, people will refer jobs to you.

  52. DrFunZ says:

    “Here’s the truth: both of you are to blame and it will take both of you to get out of it.”

    I am not so sure either person is “to blame”. Losing a job in this economy is usually not about the worker – it is about the employer.

    Now, Trent, if you mean they share the “blame” for their 10K debt, then yes, that MIGHT be true (but you do not know for sure) and even if only one person is to blame for that, they have shared responsbility in at the present time. But being out of work and trying to make ends meet is not about doing anything wrong.

  53. jim says:

    They should definitely get unemployment. And I agree the husband should not settle for minimum wage job right off the bat.

    BUT.. these people have nothing in savings and credit card debts. It is definitely time for cut backs on their spending levels. If they don’t cut their spending now they’ll be in serious risk of losing their home within months. So they definitely need to make some cuts. And I think picking up side income by both the husband and wife is also a good idea at this point.

    I don’t think its panicky or Chicken little to act quickly and treat this seriously. Otherwise they may continue to spend like they have and then they’ll be in real trouble pretty quickly.

  54. J says:

    @Trent — it would be interesting if we could get an update on this in a month or two, to see how they are doing.

  55. Claudia says:

    “However, it is vital that you not “hold out” for a better job right now”

    This is good advice, yes, of course, you need to apply for unemployment, but don’t pass up a job that is in your field, but might pay $10,000 a year less. That doesn’t mean you will be paid that forever. If you do a great job, you may be back up to your old wage shortly. Also, the longer you are without work, the more an interviewer looks critically at you. They are thinking why is this person STILL not working?
    I have been trying to convince my son to do this, to no avail. Now, he has about a month left on unemployment and no job.
    To me a lesser paying job is more desirable than a lot lesser paying job flipping burgers at Mickey D’s!
    Also, many employers check your credit record, some states allow them to do so without your consent, or employers do it illegally. (Known some who have done it illegally). You don’t want to miss payments, make arrangements to pay only the interest, if possible.

  56. Stella says:

    I totally agree with Nicole–applying for unemployment should be step one. There is usually a lag between applying and receiving your first check and when you’re trying to cover a mortgage, etc., every penny counts.

  57. marie says:

    Um, unemployment can be considered a government handout since the program is underfunded and the government steps in to make up the difference. So, yeah, it is a government handout.

  58. Cyde Weys says:

    I wouldn’t recommend canceling Internet and cell phone. Those are pretty essential for every day needs, let alone how useful they are for searching for jobs. If you’re looking for jobs online, which you should be, you’re going to need to be online all the time checking for new listings, responding to emails, etc. It would probably cost more than a basic Internet package in gas alone to keep shuttling to and from the library. Ditto for a cell phone.

    Now granted, it does make sense to downsize and get the least expensive options (get a lot fewer minutes on that cell phone, get the least expensive DSL Internet plan), but don’t drop them entirely.

  59. DiscoApu says:

    #57 Marie and those talking about unemployment being a handout, please back with facts. Unemployment is under funded during “recession” economic times. It is also taxable. During boom times it actually is over funded. But where that surplus goes is up to your congressperson and senator. So if you are pissed, vote more wisely.

  60. Nicole says:

    Marie– By that reasoning state workers also need to refuse their pension benefits. Those programs are WAY more underfunded than unemployment coffers. Tell all the teachers you know that their retirement benefits are just government handouts that they should refuse unless they’re moochers, and see how well that goes over.

    Of course, if they didn’t have those benefits, then their salaries would also be a lot higher.
    Oh, and nobody should accept Social Security or Medicare because the money for those programs are slated to run out in a couple of decades. (Social security because congress already spent the surpluses in previous years, Medicare because health care costs are rising at a rate greater than inflation.) Go ahead and refuse all government programs if you like.

    Note also that only 25 states are currently underfunded with UI even now, AND that’s only because we’re in this horrible recession. If you introduce a time element, unemployment insurance is generally not underfunded at all. The big arguments about problems with UI are that even though it’s experienced rated (that means if your company has a history of laying off, your company has to pay more in insurance premiums to the government), it isn’t experienced rated ENOUGH (there’s an upper limit to how much companies have to pay– the idea being we shouldn’t hit companies while they’re already down). That means the government is giving a subsidy to mainly the construction industry and other seasonal work. Feel free to take up that problem with construction workers.

  61. AnnJo says:

    1. Susan may be able to adjust her tax withholding (W-4) to claim more exemptions, getting more money in her paycheck;
    2. She may also be able to lower her retirement plan contributions. If contributions are matched, this is less desirable, but still better than multiple late fees on credit card debt.
    3. Susan should review her paycheck for optional deductions she may not remember are there: United Way contributions, contributions to the teachers’ union political action committee, etc.
    4. If they have a tax refund coming from last year, get the taxes done ASAP rather than waiting for April, and make sure EVERY deduction is claimed!
    5. She should call the mortgage company and see if they can be put temporarily on an interest-only payment plan.
    6. If they pay monthly bank fees, she should talk to her bank and get an account that doesn’t charge them – or change banks. A lot of them are offering bribes of $75 to $00 for opening a new account.
    7. She should check her state’s unclaimed property website, and see if they have any money coming. A surprising number of people have small amounts due them from ancient utility deposits, overpayments of accounts, insurance premium rebates, etc. Hey, it may only be $50 or $100, but for 10 minutes’ work in checking and filling out the forms, it’s not bad.
    7. Susan didn’t say if they have children, but their new, lower income levels may qualify the children for state assistance in medical insurance coverage. If she’s paying to cover them now through work, that is an expense she might be able to dispense with.
    8. The husband should exploit every usable skill and tool he has, while he looks for other work in his field. Assuming some basic capabilities in self-promotion, it is almost certain that he can make more money on free-lance projects and temp work than in many retail jobs. And not just in IT work. Example: If a neighbor knocked on my door and told me he was temporarily between jobs, had a pressure washer and knew how to use it, he could walk away wifth $100-200 for a couple of hours’ work cleaning my driveway and deck. Walk up and down the neighboring streets and see what needs doing. Not all houses that look somewhat untended are that way because the owners are poor; sometimes they’re just over-busy or don’t have the tools, physical capabilities and/or know-how to do what needs to be done.
    8. Hubby also should keep to a regular work-like schedule. Get up at the same time he used to, get ready for whatever the work of the day is – job interviews, temp jobs, or work at home, and put in a full day’s work, even if it is cleaning out the garage, painting the living room or changing the oil in the car. It is too easy to start drifting into a sedentary and unproductive mindset that can spiral into depression or marital strife.

  62. Moneymonk says:

    File unemployment, Between unemployment and her income that should be able to eat, pay utilities and the mortgage. The credit cards can take a hike until things get better.

    Remember, 85% of things we worry about don’t happen and the 15% that do, is not as bad as we thought

    If things do not get better, it may fit to modify the mortgage balance

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