Don’t panic. Take a deep breath. Let’s see what can be done immediately.
First, don’t take money out of your 401Kunless you have just a one or two month blip in your income. You don’t need to have tax problems on top of financial difficulty. Most people will use all their 401K to get out of their financial problems but it does not work. Talk to a bankruptcy attorney first. They can help you see if there is a way out of the hole you are in. Funds for retirement are critical to your future. Get some advice before you spend your retirement funds today. Your 401K is going to be protected in bankruptcy.
Second, make a budget. It may be depressing but it is necessary. See where your money is really going and figure out what expenses are not necessary. Cell phone/telephone/internet/cable bills are a great place to start. The market has great deals all the time. Be careful not to get sucked in on a good deal that just increases in cost every month. Some of these satellite deals can suck you into spending more than you intended. Do you spend too much money on lunch when you could bring food from home a few days a week? Are you saving anything? How do you pay for car repairs or medical bills? These need to be a part of your budget and money needs to be put into savings every month–even if it is just a little bit.
Third, spend your tax refund money wisely. Don’t go out and buy something new when you really need to pay down your credit cards unless it is something you really need like repairs on the car, dental work, a new stove, etc. BUT before you pay on your credit cards, take a close look at whether you are regularly paying double or triple the monthly payment required on your cards. If you are not making a significant dent in paying down your credit cards and you use them every month without paying off the new charges, talk to a bankruptcy attorney before you use the tax refund check for payment on your credit card. You will want to use the tax refund for reasonable and necessary expenses before you file bankruptcy. Prepay your insurance for a year. Get work done on your car if it is needed. Go to the dentist. I can give you lots of good ideas on where to spend those funds. If you are doing a good job paying off your credit cards then this is where you should put those funds. You will save a lot of money in interest if you pay them off.
Third, take a look at your credit report. Go to www.annualcreditreport.com. There are normally errors on your report. This may take some time but it will be worth it. If there are errors, you can dispute the information that is reported. Sometimes they include information on your report that is really someone else’s stuff. Maybe it is a bill that you in fact paid. Maybe you thought you paid off a bill but there was still a late charge left that you did not know about. It could be a small bill that you did not even know you owed or forgot all about. You can make some headway on your credit score. Every little bit helps. If you need to refinance your home or get a new car, the better your score the better your interest rate.
Forth, what about refinancing? Talk to your lender and other lenders. Interest rates are pretty good right now. Be careful to chose a reputable lender. Do some research before you sign on the dotted line. Understand that at times they will tell you what your payment is going to be when actually the amount may be higher after taxes and insurance is escrowed in. Find out what all the fees are going to be.
Fifth, need a new car? Try a credit union. You will get a better deal much of the time. Your payment might be a bit higher but you will pay a lot less interest. Don’t look at just what your payment is going to be. You need to know how much you are paying for this vehicle which is not just the sticker price. How much are you paying including interest. Have them figure it out for you. Then make a choice on whether you want to pay that much or not.
Ok, there are so many other things I could share. However, I need to head off to church. If you have any specific questions, feel free to email me. I don’t have all the answers but I might be able to point you in the right direction. Good luck!