Top 5 credit crisis questions

11.13.08
By Emily Peters

I've started feeling like a medic on the front lines of this credit crisis. Emails from around the country, each one sadder than the last, have been pouring in. I've listened to devastating debt stories at recent financial seminars. There are a lot of people with money problems out there looking for some triage. From all of this, five main types of questions have emerged:

1. Help! I can't pay my home loan and my credit card debts are out of control. What can I do?

If you're stuck between a rock and a hard place financially, you have to take a close look at your situation and make some tough choices. Is there anyway that you could get back on track on your own? If not, talk to a debt expert about your options. You may be able to go into a debt management plan or debt negotiation program. If your situation is very serious, you can investigate what foreclosure or bankruptcy options are available. Take action now instead of waiting until your situation worsens.

2. My credit card limit was just lowered. What does this mean for my credit score and what can I do?

Credit card companies are lowering credit limits left and right as a way to reduce their risk. Your credit score could drop dramatically if it happens to you. Basically, the reduced limit could make it appear that you're maxed out. In this situation, you should call your creditor to see if you can have the limit increased. Or you could reduce your balances or open a new credit card account to counteract the reduction.

3. I just lost my job. What can I do to survive financially until I find a new one?

In the first few weeks after a job loss it's important to enroll in COBRA to continue your health care coverage and to sign up for unemployment compensation with your state. COBRA can be expensive, but if you don't register a trip to the hospital could send you into a debt spiral and you could have trouble signing up for a new insurance program due to the gap in coverage. Beyond these two key steps, you should try to reduce your expenses and come up with a plan for surviving on your new budget. If you are going to have trouble making debt or loan payments, talk to your creditors and see what sort of hardship programs they may offer.

4. I already have bad credit, will a foreclosure, repossession, debt settlement or bankruptcy make it worse?

Once your credit is already damaged (under 500) you don't need to worry much about it getting worse. There's a floor to how low your credit score can go and how many points you can lose. In some ways, this is a good thing because it allows you to stop worrying about your credit for a while and focus on doing what's right for your finances. Take whatever actions are needed to get back on track financially and then work on rebuilding your credit once you're back on stable ground.

5. The credit crisis hasn't hurt me yet, thankfully. What can I do to be prepared for the worst?

Three things are key: 1.Get out of debt; Credit card balances can quickly drag you down if something goes wrong with your finances. 2. Build up your emergency savings; try to have enough money in a high-yield savings account to cover 3-6 months of your expenses. 3. Have a good credit score; with good credit you can still qualify for low rates on loans and credit cards.  This is also a good time to look at your larger financial situation. Are you saving enough for retirement? Are you overspending each month? Where can you improve?

If you have a question or story to share about the credit crisis, send it to tidbits@credit.com.

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