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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