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Understanding The 6 Reactions To A Financial Disaster

man swimming in debtAre you currently facing a big problem with family finances? Nobody wants to be in a financial disaster. If you even find yourself in one, you want to get out of it and you want to do it quickly.

While this is a natural reaction, you might want to change your perception about this. Because having a negative attitude about what is already a disaster will not help you change anything. If, like millions of Americans, you are still struggling to recover after the Great Recession, you might want to take a look at how you are reacting to the whole crisis.

The truth about your financial crisis

Here’s the thing: everyone goes through a financial disaster at some point in their life. Now your reaction to that crisis will have a big effect on how your life will turn out. If you react to it in the wrong way, you might end up in an even bigger disaster. If you react to it positively, then you might learn something new from your situation.

Looking at the current statistics in our country will not really help you in being hopeful about financial recovery. An article published in About.com regarding the US Economy revealed that the total debt in the country continues to rise. The credit card debt in May 2014 is at $872 billion – a rise from $870 billion in April. The loans are $2.32 trillion in May which increased from $2.30 trillion in April. This increase continues to disable a lot of American families because the increase in debt, specifically involving credit cards, is believed to be caused by late payments, lack of emergency funds and savings.

When it comes to financial problems, we usually think that earning more will get you out of it. While that may help you with the debt or payments that you need to make, it will not alleviate your situation in the way that it should.

6 common reactions to a financial problem

It is important to know that in any financial disaster, you have to react to it the right way in order for you to turn it into something beneficial in your life. As difficult as that may be in your current “crappy” situation, it is not impossible.

According to an article published on PsychologyToday.com, you can turn any crisis into an emotional threat or a challenge – depending how you choose to react to it. This will highly depend on how you control your emotions. The article revealed that your emotions are the heart of your response to any financial disaster. It can either be an obstacle or your source of strength to overcome your situation.

Understanding the different emotions that you will feel will help you in recovering from a financial disaster. That is because you will learn how to deal with each and every one of them. While we usually react to situations differently, we usually go through the same 6 reactions after a crisis. How we deal with each of them will determine how fast we can move forward.

Here are the 6 reactions that you need to go through as you personally deal with your financial problem.

  • State of Shock and Denial. The first reaction is usually shock and closely followed by denial. When you confront a problem for the first time, it is only natural that you show disbelief. Sometimes, even if we know the situation, being faced with the actual problem can be disconcerting. We never really know how big the problem have become unless we lay it all out. These reactions will usually delay the inevitable pain of knowing that you did something wrong in your life.
  • Point of Depression. Once you get over the feeling of shock, next come that sinking sense of depression. When it dawns on you that the financial disaster is real, it can really pull you under. Knowing that you made a mistake that led to this bleak situation is one thing. Trying to wrap your head in the reality is something else entirely. Admitting defeat is never easy and if you do not prepare for this reaction, you will lose it. Try not to stay here too long because the longer you feel depressed, the more you will be unable to act on the problem.
  • Phase of Acceptance. You should ideally breeze through the first two and go to this phase immediately. This is the first step to being proactive about your financial disaster. Once your depression is over and you have accepted the reality of the situation, this is when you can finally start to move forward. Unless you have accepted the mistakes and the problem, you can never really start the recovery process. You can find it easier to accept your situation if you try to see the good in the bad situation. Here is an interesting and light-hearted video about what you should do when things around you are falling apart. Marie Forleo discusses how you should react to a disaster in your life – which is actually applicable in any type of crisis – financial or not.

  • Stage of Analysis. Once you have accepted the financial disaster, you can now concentrate on moving forward from the problem. But before you can do that, you have to analyze what led you to this particular scenario first. Be honest about what really happened. Find out how you can got into this financial crisis. Then, identify what you did wrong and what you should have done differently. Some people skip this part over but it is an important step in your road towards recovery. If you fail to identify the mistake, then you might see yourself in this same situation again in the future.
  • Time for Rebuilding. Once you have identified the root of the problem, you can start to plan out how you will improve your finances. Will you require a debt relief program or should you just start earning more? Should your plan involve a change in your lifestyle and spending habits? These are all part of rebuilding what you have lost during the financial disaster.
  • Process of Fortification. Finally, you need to undergo the process of fortification. With what you have gained in the number 4 step, you can use that knowledge to fortify your finances to make sure that you will never be put in another compromising financial position again. Do not end with rebuilding. You need to make sure you that this is the last rebuilding that you will ever make.

How to rise from a financial slump quickly

Although rising from a financial crisis is difficult, it is something that you can do. It just takes a lot of discipline, self-control and even a bit of reflection about how you had been living your life. Do not think that it is the end of the world. You will always have hope to recover from a financial disaster as long as you are willing.

Once you have gone through the 6 reactions, you need to focus on maintaining certain habits so you can keep yourself from the mistakes of the past. In truth, going through a financial problem is not so bad – at least if you look at the lessons that you have learned because of it.

According to the Economist.com, Americans are spending less on unnecessary expenses after the Great Recession. They learned their lesson and they have identified that certain expenses have contributed to their financial fall.The average spending per family, from 2007 to 2010, fell by 3.1%. Since the average prices have risen by 5.2%, the article believes that the drop in spending is actually 8%. That is not so bad for a nation who has a reputation for overspending.

There are techniques that you can do to stay away from financial ruin and here are three suggestions from us.

  • Build up your emergency fund. This reserve money will help you get out of unexpected situations without borrowing money.
  • Investing your extra money. This is the proactive way that you can grow your money. Any extra money that you have that is outside your emergency fund should be invested. This is your way of setting up your money so it can earn you some extra income.
  • Spend your money wisely. In the end, it is not about how much money you are earning. Staying away from a financial disaster is best done by using your money wisely. Do not let your overspending lead you to another crisis.

What Are Debt Traps And How To Avoid Them

woman chained to a dollar signIf you are intent to grow your personal wealth, it would be difficult to do so when you are in debt. There are debt traps that can really pull you down into a financial ruin.

Some business gurus like Robert Kiyosaki say that debt is not entirely a bad thing. When you utilize it correctly, it can help you grow your money exponentially. But when you do not know how to use it properly, it has the power to rule over your life and put you in misery.

Admittedly, there are debts that has the potential to do you so much good. Things like student loans or home loans that can help increase your personal net worth. But even these debts that have the potential to improve your wealth can turn into a total nightmare. At least, it will if you end up getting yourself into debt traps.

Different scenarios that will trap you in debt

Debt comes in many forms but it is used the same way. It allows you to purchase things or avail of services that you would have otherwise been unable to pay for in cash. You do not have to wait because you can use the money of someone else to finance your expenses. Of course, that comes with a price. You have to pay back the money with interest. That is how debt becomes destructive.

The FederalReserve.gov released the most current report about the American household debt. According to their data, the total outstanding debt in November 2013 is now at $3.087 trillion. It went up from the $3.075 trillion last October. Of course, this growth may be because of the holiday shopping that peaks around these months. But regardless of the cause, it still goes to show that the credit is rising. It still means people have a bigger amount to pay for.

The fact that it is rising means consumers are not paying enough. They may not be defaulting but they are adding more debt to their overall balance. You want to make sure that you will avoid the debt traps that will keep you in financial crisis. To help you do this, here are the different traps that you may want to keep an eye out for.

  • Buying too many homes. Having your own home is great. Having more than one, is also better. But here is a word of caution. Make sure that any house that you will get in excess of where you intend to live can afford to pay for itself. Investing in rental properties is a good idea because it give you a significant amount of passive income. If you can put up a two door apartment that you can rent out for $2,000, that gives you $4,000 extra income a month. But make sure your mortgage loan on either properties will be less than $2,000 a month. That way, it can pay for itself while providing you with a small amount of income to put aside for its maintenance, insurance and taxes. If you cannot do this, then be more conservative with your property investments.

  • Enrolling in an expensive school without a plan to pay back your student loans. In general, student debt is a good idea but if you fail to pay it back on time, it can lead to a lot of problems. Among the debt traps, this is one of those that cannot be discharged by bankruptcy. Expensive and prominent schools are great choices but make sure that you have your career mapped out to pay back this loan once you graduate.

  • Co-signing someone else’s loan. This is never a good idea – even if it is for your child. There are parents who co-signed the student loan of their children and when the child ended up failing to pay for it, they had to sacrifice their retirement. Even if it is a close friend or even your significant other, learn how to say no to a co-signed loan.

  • Borrowing from your 401(k). Technically, this is your money so people will wonder how this is part of this list of debt traps. But think about it. When you contribute to your 401(k), it will be on your pre-taxed income. When you borrow from it, you have to pay it back with post-tax money. And we all know that when you withdraw your retirement fund when you retire, it will also be taxed. In effect, the same money is taxed twice. Not only that, you have to pay a withdrawal fee when you borrow money from your 401(k) during your pre-retiree years. All in all, it is really not a good debt to be in.

  • Paying only the minimum of your credit cards. Believe it or not, the only people who will benefit from you paying only the minimum are your creditors. The minimum payment is a credit card debt trap. While it will keep you from paying late penalties and ruining your credit score, it will lead you to waste a lot of money on interest rates.

All of these debt traps can really put you in a bad financial situation. You should try to avoid this as much as possible. If not, you could ruin your chances to increase your personal wealth.

Tips to keep yourself out of a debt pit

The credit traps that we discussed are all real and if you fall into them, you will really find it hard to get out of that debt pit. So here are some tips that will help you avoid them.

  • Live below your means. Some people will say that you should live within your means. While that will keep you from incurring debt, it will not give you enough money for savings. If you have financial goals, you should spend below your income capabilities. This way, your extra money can go to saving or even investing.

  • Create a budget plan as a family. Creating a budget is the right way to go. It will help you ensure that you will be living below your means. When you create the budget with the whole family, you will find more success in implementing it. The members of your household can all contribute to that budget plan and they will feel more responsible in following through with it.

  • Pursue budget friendly hobbies. Living on a budget does not mean you give up on entertainment expenses. On the contrary, you need this to make life a lot more fun to live. However, you have to consider the money you will use up on it. There are various hobbies that you can pursue and some of them are even for free.

  • Limit dining out. In a study conducted by the Principal Financial Group, the top reason why Americans failed in following their budget is the fact that they ate out a lot. 22% of the respondents in their survey mentioned how dining out is the main culprit. Just make use of your kitchen to cook and eat healthy food. That will turn out to be more economical and good for your body too.

  • Save money like it’s a bill. It is also important to decide on a money that you will put aside every month. Treat it like a bill that you have to contribute to consistently. That should help you grow your emergency fund faster.

Follow these steps to keep yourself from the destructive effects of debt traps. Make wise financial decisions to ensure that you will only put your money where it will grow.

If you have acquired some debts and it is carried over from last year, here is a video from National Debt Relief to help you find debt freedom.

4 Important Issues In The Financial Market This Fall 2013

After everything that happened in the past few years, we all learned how to be more conscious of our finances. The whole idea is to achieve financial stability. When we reach this financial state, we are more secure even if a crisis will occur. That includes paying off our debts and making sure we save as us money on interest. Not only should we concern ourselves with our debts, we also have to think about growing our income.

The financial market is one of your concerns if you want to know how you can grow your income. It is very important to understand how it operates so you can maximize the investment options that you have chosen for yourself. We are all encouraged to increase our income and diversify it to protect each of our investments.

4 concerns of the financial industry come October

man falling off a chartWhether you have invested or not, it is important that you monitor the financial market. It is defined by Wikipedia.com as the place where consumers and businesses can trade commodities, financial securities and other items of value. These exchanges are usually done with a lower cost. Since everyone is transacting in this market, consumers and businesses are able to compare costs so they can get the best value and return from their investments.

What you have to understand about the financial market is that it can quickly change on you. This is why you have to monitor it constantly so you can make smart decisions about your money.

To help you achieve this, we have compiled 4 different issues that should concern you if you wish to survive the financial market this fall of 2013. These are the different issues that you need to keep a close eye on.

  1. Shaky economic recovery. Evidently, the government shutdown and the debt ceiling are keeping things at a standstill this October. The economic recovery, as more people will agree, was never stable to begin with. It was, at best, slowly but steadily increasing. Definitely, it hasn’t fully recovered yet. But with the standstill in the government and the legislators unable to meet their deadlines, it seems like our economy could suffer another setback. This will not bode well for your investments and you should try to see how this will affect your profits. That way, you can make smart decisions about where you will put your money.

  2. High interest rates. This is actually a scenario that credit and lending companies will seriously start to consider. Part of the issues that will definitely come into the limelight is the loan guarantees that the government is offering so consumers can get better interest rates in their credit accounts. If the government proceeds to pull out this support, people will have to deal with high interest rates. If you have a loan interest rate that is constantly changing, this could be a problem for you. It can compromise some of the assets that you are paying off.

  3. Government default. Of course, another concern is the debt default that the government will be falling into. October marks a lot of deadlines for the House and Senate and if they cannot reach an agreement with the budget and the debt ceiling, a default on the government debt payments may not be far from happening. This can cause taxes to rise and that can jeopardize the net income that consumers will take home. A lot of scenarios can happen because of this. It can lead to less credit and spending – which will affect businesses in general. Stock values can fall and that can affect your own investments too.

  4. Shopping season. The Fall season is leading up to the shopping season because of the upcoming holidays. This will bring us a lot of temporary highs. We will see an increase in job opportunities as retail businesses will puff up their manpower. Consumers will increase their shopping budget in response to the gift giving season. These are all temporary and while it may be a good thing for those who will get jobs, you have to be very careful about the expenses that you will incur. Never remove the current economic conditions from your consciousness and keep a tight grip on any credit that you want to make.

All of these financial market issues are pretty involved with each other. Although there is a chance that it will not be as bad as we think it will be, it is still best for us to make the necessary steps to take care of our finances.

How to enjoy your holidays despite the country’s shaky financial condition

Definitely, you want to plan ahead when it comes to your holiday spending. While we all want to join in on the good spirits of this season, you have to be very careful about your financial decisions to make sure that you will not go overboard. What the financial market is telling you this fall is that you have to avoid holiday debt at all costs. Here are some things that you can do to make this happen without feeling left out this season.

  • Make a list of the people you want to give to this season.

  • Start shopping as early as possible. The holiday rush will increase costs and you can find better deals off season.

  • Remember that you do not have to buy a gift for everyone. The gift giving season corrupted our minds into thinking that we should give everyone who you think will give you a gift. Give only to the people you want to give to.

  • Great gifts does not have to be expensive.

  • Buy things in cash – avoid buying in credit if you do not have to.

These are only a few of the things that you can do. If you can make your own gift, that may even cost less and allow you to give to more people.

What Is The Fiscal Cliff And Why Should You Be Concerned About It?

With the government shutdown and the debt ceiling issues, it all seems like there is a looming financial crisis in the horizon. But even as you try to come into grips with these news, you cannot help but wonder how it will affect your personal wallet. While the government haggles back and forth, you need to take time to understand a few important concepts that may or may not plunge us into another financial crisis.

A personal financial crisis is one thing. While it can be scary too, you can always rely on the government for aid. But what if it is the government that is having trouble? Where will we get financial help?

What is the fiscal cliff?

Just like the debt ceiling, the fiscal cliff is a term that strikes fear in the hearts of consumers. This is defined by Investopedia.com as the elimination of some tax cuts and decrease in spending at a pre-determined date. Here is a video from the Economist with an explanation of the fiscal cliff back during the end of 2012.

When people started to incur a lot of debts and go under, the government stepped in to propose special tax cuts to the credit industry. This is to encourage them to allow consumers to get debt reduction. In the simplest term, the government provided tax benefits to credit companies for any debt they forgive. It involves a lot more than just these credit implications. The government also hiked consumer benefits and protection. All of these were intended to help consumers and their respective households to rise above their own financial struggles.

But while that helped us, it meant an increase in government spending that resulted in a higher deficit for them. They spent a lot more than what they were getting in terms of taxes. As the government debt continued to increase, they get closer to the debt ceiling.

That is the whole purpose of the fiscal cliff. It seeks to eliminate:

  • Tax benefits and exemptions that lowered government income, and;

  • Consumer and business benefits that increased government spending.

By eliminating these two, the government will be able to prevent defaulting on their own debts. This was back in 2012. As you all know, the fiscal cliff then was averted on the first month of 2013 as the President and the House/Senate agreed to postpone this event from happening.

But it seems that we may be heading for another fiscal cliff as the government shutdown and debt ceiling raised new problems for the country. Will the government finally go over the fiscal cliff or will they postpone it once more to give everyone more time to solidify their respective finances?

While the fiscal cliff will help the government reduce their own deficit, what will it mean for the average American?

Effects of having the government withdraw tax cuts and make spending cuts

woman with help signAs mentioned, the fiscal cliff will result in higher taxes and lower benefits for the average consumer. Instead of helping us, the government will be holding back the assistance they used to give us so they can take care of their own problems. It is difficult to judge if this is the logical way of handling the overall financial problem of the country. But nevertheless, these are the possible effects that you can experience when the government decides to just go over the fiscal cliff.

  • It can increase your income tax. The increase will vary depending on where you fall in terms of the income bracket. Most likely, the more you earn, the more will be taken from you in terms of taxes.

  • Federal unemployment benefits may be affected – which means it could be lowered significantly.

  • Credit companies may be less than willing to accept debt reductions and forgiveness of consumer and business debts.

  • Loans and other types of credit may be given higher interest rates to help creditors offset any losses that used to be backed up by the government.

  • It can affect small businesses and hinder the growth of their profits.

These are only some of the few effects of the fiscal cliff. The specific details will all depend on what the President, House and Senate will come into terms with. But in the meantime, what can you do?

While you should be keeping an eye on what is happening to the government’s financial state, you have to start looking towards your own finances. You need to start looking for ways to cut your monthly bills. If you have plans to buy something expensive, postpone that for now – especially if you plan to purchase it on credit.

You should also boost your savings even further. Even if you have already completed your emergency fund target, why not add more to it? That way, in case a financial crisis does happen, you don’t have to worry about your daily expenses.

There is nothing that we can really do right now but wait for our chosen legislators to settle their differences and arrive at a solution that is beneficial for everyone. At the rate they are going, it is difficult to know if they will arrive at an agreement quickly or it will be dragged out. Regardless of what happens, just make sure that your own financial standing is secure.

Unsolicited Financial Advice For Furloughed Workers

man in a dollar chainWith all the commotion going on with the government shutdown, we’d like to take some time to give some unsolicited financial advice for the furloughed workers that were sent home. This, once again, is a testament of how fragile our comfortable lives are. Even government employees can be sent home without pay and the same is true for private employees.

So what can you do if this happens to you? It is difficult to be financially underwater and unemployed but sometimes, things happen that will drive you under. How can you survive such an event in your life?

5 financial tips to help those temporarily laid off

If you are one of the furloughed government employees, we have a list of financial advice that we hope can help you during this tough financial time.

  1. Review your savings. This is the first thing that you should do. Try to see how much money you have and how long it will last you. You will be relying on this savings to finance the needs of your family while you are not working. It is important that you try to stretch this as long as possible because you are not really sure how long you will be out of work.

  2. Create a frugal budget. If you know how much money you have, it is time for you to create a frugal budget. This is something that will allow you to stretch the money that you have for as long as it is possible. Your frugal budget means you will be spending only on the bare basic necessities. And even those expenses will be filtered to see which you can do on your own so you spend even less money on it.

  3. Know your benefits. Another financial advice that is important is to know your benefits. You can find out what assistance you can get through the Benefits.com website. If you are unemployed, we suggest that you look into the Employment/Career development assistance page or the Living assistance page. See if you qualify for these benefits and get help from the government. The help usually comes in financial form or if you require food assistance, some give out groceries too. If you can get these for free, then you can use your savings on something else.

  4. Be mindful of every expense. If you are spending your savings, be very careful where you spend it on – even for the most basic of necessities. For instance, if you use bread, instead of buying it, why not make it from scratch? It usually comes out cheaper. And if you have a garden, you can try growing your own produce.

  5. Look for other sources of income. The last financial advice is to find a way to earn money. While cutting back on expenses is good, it will only sustain you for a limited time. But if you find another source of income, then that can support some of your expenses. Anything is possible when you want to earn more. You can get an online job and get paid for projects you accomplish. This can even be for people who live in different countries. If you have an extra room, have it rented for the additional income. You can do as much as you can to add to your savings so you do not exhaust it before you can be reinstated – or until you find another stable job.

What to do if you have debts and you lose your work?

One of the biggest dilemmas of people who got laid off is their debts. If you have some debts to your name, that will bring you additional worries. You need a budget and action plan to help pay off your debts with very limited resources. Here are some additional financial advice that is specific for your debt problems.

  • Call your creditors immediately. If you get wind that you will be furloughed, call your creditors and lenders immediately. Tell them of the situation even before you have to default because of lack of funds. You can ask them to suspend your account so you will not be given late penalties. This cannot stop the interest from accruing though. If it is a more permanent unemployment, you may want to negotiate with your creditors for a payment plan that you can afford.

  • Research your debt relief options. Whether you need a simple debt consolidation or debt reduction, you need to find out all the options that you have. This is to help you make a smart choice when it comes to your payment options. If you are already going through a debt relief program, you may want to change it. If you are going through debt consolidation, you may be better off switching to debt settlement to help you get a debt reduction.

  • Stop acquiring more debts. Of course, part of your efforts is to stop accumulating more debts. Although it may be tempting to use your credit cards to purchase food and groceries – try to curb that temptation. Look for food benefits that will help give your family the nutrition that they need without putting you in debt for it.

This is probably a tough time for you and some financial advice will really get through. Just make sure that you will always be smart about your financial decisions from now on. And while you want to wallow in self-pity and despair – don’t. Your family needs you to come up with a way to get back your job.

Important Facts About The Debt Ceiling

Uncle Sam immersed in debtAfter the government shutdown, the United States is now facing another problem in the near future. According to an article from Money.CNN.com, the country is approaching yet another financial issue that has to be solved: the debt ceiling.

We are still reeling from the effects of the government shutdown because the House and the Senate were unable to set a budget to fund the different agencies that function in our government. The effects went beyond the non-essential employees that were sent home because of this issue. Private companies who relied on government contracts had to suffer because the agencies they were catering to is shutdown. And a lot of businesses who rely on tourism revenues from national parks, museums and other government operated establishments will have to suffer as well. Not to mention the thousands of foreign tourists who traveled thousands of miles only to be barred from enjoying the attractions that had to close because of the government shutdown.

With these effects still fresh, can we really afford the negative backlash that the debt ceiling will give us?

When the government spends more than what it takes in

But what exactly is the debt ceiling? Wikipedia.org defines the US debt ceiling as the restriction on the national debt that the Treasury can issue. This is all decided by a legislative body. The Wikipedia page continue to explain that the expenses of the federal government is authorized by legislators and the debt ceiling does not restrict deficits. Because of this, the debt ceiling only restrains the payment for incurred expenses that the Treasury has to pay for. In the past, the government reached the debt ceiling only three times: 1995, 2011 and now in 2013. In fact, we already reached the limit last May of 2013.

The bottom line here is that the government incurs a lot of debt that they are having a hard time paying off. Whether it is the country or an individual consumer, having too much debt is never a good thing. Let us break it down to include the whole scenario that led to the 2013 debt ceiling issue.

  • For quite some time, the US government has been spending more than what it is earning from taxes.

  • Things got worse during the recession when the government was forced to support a lot of debts to avoid the collapse of the credit industry as consumers defaulted left and right.

  • This increased the spending exponentially even as taxes are lowered to help creditors and lenders recoup their losses.

  • This means the income (taxes) of the government decreased while the expenses increased because of the guarantee that the government had to provide consumer loans (FHA, VA, Student loans, etc).

  • This deficit means the government keeps on incurring debt and that debt is continually growing.

  • The country’s legislative body set a debt ceiling that serves as the limit for that accumulating debt.

  • When the country reaches that debt ceiling, two things must happen to avoid default: the income must be raised or the spending must be reduced.

What will happen if government reaches the limit of the deficit?

So what will happen if the government reaches the debt ceiling? Well, we can probably assume that it will be a disaster once more. You need to know these things because you have to be prepared for any crisis that it could trigger. It may seem pessimistic but being prepared is what will help you survive a looming financial crisis.

Just like a consumer must earn more or cut back on spending, the country must either increase their cash inflow or reduce what is going out. On a national scale, this is what it means.

Increase taxes

If the Congress decides to increase the government revenues, that means more taxes. Given the high debt ceiling, this increase will have to be a significant amount. When taxes increase, the net income of worker will be reduced. That could lead them to incur more debt just to make ends meet. When business taxes increase, product prices will rise and that will affect the budget of every consumer as well.

Reduce government spending

For the other option, the government has the option to reduce spending. That means less benefits for the people who need it the most. That also means debt guarantees will be reduced. That can cause private lender to increase interest on loans to cover potential losses. It could also mean a lower income for government employees and less funds for innovative projects.

Of course, these are just a few of what the two options will do to the country. This is why the government has to do something about the debt ceiling. The issue is either to raise the ceiling or come up with a way to stop spending more than what the government is earning. If the government defaults on their debts, that can lead to bigger financial problems. If this is not resolved, it can be the start of another recession that will crash the stock market, lower the dollar value and possibly increase unemployment. Given the current condition of our economy, the country will have a very hard time surviving another financial crisis.

How The Government Shutdown Is Hurting Everybody

busy businessmanRegardless if the financial problem is within the government or limited in a household, excessive amount of debt can lead to problems. The government shutdown is not really a direct result of the country’s debt but it poses a lot of problems that will affect the financial state of the Americans in general – thus making it a lot worse.

Check out our infographic about how the government shutdown over Obamacare can affect you.

Some people in the private sector seem to be unperturbed by the ceasing of some government operations. But what you have to realize is that this event will cause a ripple effect that will reach you eventually. That is regardless of how your business or the company you are employed in is not reliant on government operations.

What happened when the government stopped non-essential operations?

Last October 1, the federal government shutdown most non-essential operations in response to the inability of the legislators to decide on their funding. Since they do not want to work without pay, the government decided to cease operations for most of their agencies. At least, this is true for the parts of the government that will not seriously compromise the national security of the company. The government employees that were sent home are not really unemployed. It is a temporary predicament that will only last until the House and Senate agree on the funding of each agency in the government.

According to the USA.gov site, these are the areas that were shut down by the government.

  • Provision of healthy food and meals for the elderly and young children. In the beginning, there may be funds to supply the needs for a couple of days but it could cease altogether if the shutdown extends.

  • Any lines of communication that help Americans inquire about their benefits will stop operating.

  • National parks, museums and other government operated tourist facilities will be shut down completely.

  • Processing of compensation, education, pension and other benefits of veterans can be compromised with an extended shutdown in the government.

  • New government backed loan applications (small business, consumer, student) will stop.

  • Research on life-threatening diseases will halt and new patients will not be admitted for clinical trials in the National Institute of Health.

  • Non-essential inspections that usually protect the interests of consumer safety will stop while the government is shut down.

  • Energy and transportation reviews and permits will have to stop. This will affect private companies relying on the government contracts.

  • Rural community loans that aimed to improve energy and transportation will stop.

There are people who will still be going to work but they will not be receiving any pay while the shutdown is still enforced. These are the people who are directly involved in the national security of the country. They will get a lump sum of the payment once the budget is approved though. For those who are sent home and furloughed without any payment, they are the ones who are gravely affected by the shutdown.

Who are also affected when the government closes office?

But apart from those employed by the government, there are also other people who are directly affected by the government shutdown. In some cases, their own predicament may be more critical.

Here are some of the areas outside the government that will be affected by the government shutdown.

  • Military families will cease to receive some of their benefits – at least until the shutdown is over.

  • Businesses like hotels that rely on revenues from the tourists visiting national parks, museums and other government operated destinations will also be affected. These will have to cease operations as well – or at least feel a huge decline in their profits.

  • People who are relying on benefits from the government will stop receiving aid from the government. For instance, pre-schoolers of low income families cannot avail of the Head Start program.

  • Government contractors will have no or slow profits too if the agencies they are contracting with will continue to cease operations.

These are the affected parties with a short term government shutdown. The longer it extends, the more impact will be felt even by those whose profits are far from the effects of government affairs.

Will this be a potential financial crisis?

It is too early to tell if this will lead to another financial crisis or not. It seems that this event has the potential to end in disaster but we can all hope that things will settle soon enough. In the meantime you have to make sure that if things do end for the worse, you are prepared to survive a financial crisis.

For households that are directly or indirectly affected by the government shutdown, here are the tips that we have for you.

  • Keep an eye on what is happening in the government and around you.

  • Bring out your frugal budget or create one.

  • Start adapting a frugal lifestyle.

  • Sell items that you do not need.

  • See how long your emergency fund will last you.

  • Find other sources of income. You can search online for alternative careers.

  • Call your creditors and lenders to see if you can come up with a more manageable payment terms.

  • Hold your plans for any major purchases.

  • Do not put yourself in debt (or further in debt).

While we want to keep ourselves from being too pessimistic about things, it helps to start preparing for any eventuality. Keep calm, create a backup plan and expect the worse. If things get better, you will not lose anything anyway.

Effects Of Debt Stress And How To Deal With It

woman kneeling over billsDebt can affect your life in so many ways. In most cases, the effects are less than satisfactory. You have to realize that your credit obligations put some form of monetary restriction that keep you from enjoying the fruits of your income. If you cannot buy the things that you want today because you have to prioritize your debt payments, that is caused by the past decisions that you made.

One of the negative effects that can make debt very dangerous is debt stress. This is the constant feeling of worry that can lead to all sorts of serious ailments and illnesses. If you let your debts get out of control, you are putting not just your finances in danger, but also your health.

How debt increases your stress level

A WebMD article entitled “The Debt Stress Connection” pointed out some very interesting ideas about debt stress.

Jay Winner, MD, the author of Take the Stress Out of Your Life, stated that stress is our body’s way of pumping adrenaline in our body during specific events. It ignites the natural “fight or flight” system that will help us survive certain situations in your life. Most of the time, these situations are negative. The articles states that your body undergoes the following changes:

  • Faster heart beats.

  • Dilation of pupils.

  • Release of adrenaline and cortisone.

While the stress hormones can help us survive, our body is not equipped to handle the changes that happen when we are in that condition. It is the same concept as a rubber band that is constantly stretched. If you keep in putting it under that strain, it is bound to snap.

One of the modern problems that keep us feeling stressed is our financial condition. Even those who believe that money is not everything would have to admit that our consumerist society puts it on a pedestal. The bottom line is, you have to have enough money to support the lifestyle that you have – otherwise, you will be quite miserable.

The WebMD article cited the following survey results to help connect debt to stress and other health conditions.

  • 73% of respondents in a 2007 American Psychological Association survey states that money is a significant source of stress in their lives.

  • Three out of four American families have debt, based on the Survey of Consumer Finances made by the Federal Reserve.

  • 2008 debt stress is 14% higher compared to 2004 – based on the AP-AOL study.

  • The same AP-AOL study showed that people with high levels of stress have health ailments like ulcers, back pain, depression, anxiety, heart attacks and migraines.

Wikipedia, in their Debt page, also states that when someone has a lot of debt, they suffer from the following:

  • financial difficulties

  • poor health in both physical and mental states

  • relationship stress

  • employment problems

  • lack of focus at work

There are other effects of debt and all of these send signals to our body that we are in danger. That releases the stress hormones that puts so much strain in our physical, mental and emotional conditions.

How to remove the negative effects of debt

If you want to keep yourself healthy and away from the bad health effects of debt stress, you must do something about your financial difficulties. Obviously, that means getting out of debt and staying out of it. Fortunately for you, there are a couple of things that you can do to protect yourself from it.

Change your perspective about money and debt

While money is important, you have to keep in mind that it is not everything. You have to know that it should not be the deciding factor in what will make you happy. If you are lacking in the income department, that does not mean you should be miserable. You simply have to turn your eyes towards the entertainment activities that does not cost a thing. Also, you may want to count what you have that money cannot buy. Learn how to prioritize your relationships, health and other important aspects of your life.

Make smart debt decisions

While credit has its uses, you should know that it can also give us a false sense of wealth and freedom. Make sure that you know what you are getting into before you put yourself in debt. Try not to tie up your future income even before you have earned it. If something happens to that income, you could find yourself in big trouble.

It is important to build up your self control and keep yourself from buying unnecessary things on credit. Actually, even if you have the cash, you need to consider if you will go ahead with the purchase or if you will just put it in your savings. Buying junk will waste your hard earned money and should instead be invested or saved for the rainy day.

Choose a debt relief option

Getting out of debt can be helped in you choose the right debt relief option. There is really nothing that you can do about it but to find the best method to pay off your debt. You have debt consolidation loan, credit counseling/debt management, debt settlement and bankruptcy. Other options also include the snowball/avalanche method and balance transfer. Make a choice based on your financial capabilities and the type of debt that you have. You should also consider any financial goals that you have.

When you have chosen your debt relief option, let go of the stress. Just trust your choice and focus on getting out of debt. No use of putting yourself through the feeling of stress over something that you no longer control. As long as the solution is in motion, you can put your emotions as ease.

To know more about how you can get out of debt, watch the video below.

Don’t Let Debt Effects Dictate How You Live Your Life

man stressed about moneyAchieving a debt free life is easier said than done. You have to be very vigilant about how you will spend your money. Not only that, you need to be prepared for any uncertainty in the future because despite living within your means, your inability to finance an emergency could lead you to put yourself in debt.

We all want to be free from the bondage of debt and in our modern society, that is not easy to implement. But given the debt effects that can damage our life and future, you need to pay attention to how you can be rid of it. Although society is promoting credit to achieve a consumerist lifestyle, you have to keep in mind how powerful and influential debt can be in your life.

The damaging effects of your credit problems

When the recession hit, we all realized the extent of the damage that debt effects can bring us. Not only does it affect the present, your credit can also seriously alter your future. Here are five important effects of debt that you have to keep in mind to motivate you to stay out of it.

  • Brings emotional trauma. If you are in debt, you can testify to the emotional trauma that it has in your life. It all begins with denial when you first find out about your debt. That will be followed by stress – which is one of the emotions that can lead to several physical ailments. As you battle the stress of trying to find a solution, the magnitude of your credit troubles will also bring in fear and panic. This is caused by your thoughts of what creditors and collectors are capable of doing to collect from you. When things feel bleak, you start to feel anger at the external factors that you claim to have caused your debt. It can be your spouse or your children or the economy – this resentment will really bring you down. Finally, you are in danger of succumbing to depression especially when you go through one disappointing debt solution after the other.

  • Ruins relationships. Battling all these emotional struggles will directly or indirectly affect your behavior and thus the relationships that you have with the people around you. As you get bitter and resentful of your current situation, that negativity translates to how you relate to those close to you. Financial problems can lead to divorce and that is one other thing you can expect from your debt if you are not careful.

  • Hinders financial growth. Since your money is going to debt payments, you are unable to grow your finances through investments. Instead of benefitting from your hard earned money, you are making your creditors rich by paying interest on past purchases that is probably just sitting in the corner by now.

  • Forces a lower quality lifestyle. Just like you are kept from investing your money, you are also kept from a high quality of lifestyle that should have been easy with your income. But since household and entertainment expenses have to share the income with debt payments, a lot of your “wants” will have to take the backseat. Sometimes, you also have to make do with a lower quality for your basic need.

  • Compromises your future. Your debt will also seriously compromise your future. Instead of saving up for your retirement, for instance, you have to pay off your debt. You will hear a lot of stories about baby boomers who are forced to continue working past their retirement age because of debt. If you let your credit go out of control, that can also be your future.

How to keep your debt from ruining your life

Fortunately for you, there are ways for you to recover so you minimize the debt effects on your future. While there is nothing that you can do for the present, you can keep it from destroying the lifestyle of your future self.

Pay down your debt. Obviously, you have to pay your debts. There is no quick fix for this and you have to find the right debt relief program that will help you eliminate your credit problems. The Federal Trade Commission or the FTC provides consumers with tips on how they can approach debt relief smartly and with caution. You should check out the website to see what you can get from it. Of course, sites like the National Debt Relief will offer you great insight on various debt solutions that you can choose from.

Budget and live within your means. As you solve your current debts with the program that you will get, you have to put your finances on a budget. There are many benefits to this apart from living within your means. You get to ensure that your debt payments are funded by putting it high on your expense list. You can also keep tabs on where your money goes to. In fact, monitoring your money transactions through a budget will help you direct where it is spent every month.

Save like your life depended on it. You want to save a portion of your income because having an emergency fund can really save you from a financial catastrophe. If your job is suddenly compromised, you have this fund to support your needs and payments as you strive to get another source of income. If an immediate need comes up (e.g. a sickness or something breaks down in the house), you have this fund to finance it.

In the end, you have to realize that knowledge will help keep you from any financial difficulty. You can search through the US Department of Justice website for the approved list of debt education providers in each state. Keep yourself informed of how you can manage your money better. This will help you find the right information that will help you make the right decision about your money.

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