Creativity can pay off when facing emergencies

The Dallas Morning News (MCT) - One of the fundamentals tenets of financial planning is you should build up enough of a cushion to withstand an unexpected financial emergency.

But when you're already struggling to make ends meet, having another unexpected financial SOS pop up is the last thing you need.

The car breaks down and needs $1,000 of repair work.

The roof starts leaking.

Junior falls and breaks an arm.

Etc., etc.

Just the thought of it can throw any financially distressed person into a frenzy. But before you panic, understand that you do have options.

"Try to remain as focused a possible on the solution rather than the problem," said Maureen Johns, director of brand innovation at City Credit Union in Dallas.

Take it step by step and prioritize.

"Sit down and organize and figure out what needs to be paid immediately and what can wait," said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas.

There are expenses that you must continue to pay:

_ Your mortgage or rent.

_ Utilities.

_ Car payment, because you need a mode of transportation to get to work or look for a job.

_ Health insurance, homeowners insurance and car insurance.

Lay out your expenses so you know where your money's going and "immediately cut out luxuries," said Marian Ross, county extension agent in family and consumer sciences at Texas AgriLife Extension in Fort Worth.

"It's hard for people to let go of their cable or Internet, but those are some of the things they need to consider releasing so they can free up that money to pay for something else," she said.

Analyze all your resources.

"What are the things that will help you bridge the gap?" Mark said. "If there are no emergency savings, you need to take stock of assets, liabilities, income expenses. Is there equity in a home that you need to tap? Are there retirement funds that you may need to get you through your financial crisis?"

Mark and Johns advise against tapping retirement funds unless you absolutely have to.

"My biggest fear is that you'll just take out a 401(k) loan," Johns said. "Yes, you'll be paying yourself back, but you'll miss so much opportunity with that compound interest."

As the Profit Sharing/401k Council of America explains it: "When you take a loan from your plan, you are withdrawing money from your account balance and replacing it with an IOU. That IOU continues to generate interest from your repayments, but generates no special investment return."

The importance of keeping your retirement funds intact is illustrated by Cynthia Johnston.

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Johnston, 64, who lives near Dallas, slipped on her driveway during an ice storm in January and broke her femur. Doctors had to insert a titanium rod to facilitate healing.

Though she wasn't struggling financially, Johnston's medical bills could have very quickly turned her personal finances upside down.

Her hospital bill alone totaled about $51,000, but her insurance company would cover only room and board at $7,080.

Johnston's greatest fear was that she would have to raid her nest egg to pay the bill.

"When I looked at what they sent me, what the insurance company was to be paying for and the whole grand total was to be $51,000, it was just like, all of a sudden, the worst dreams of being on the curb eating cat food," said Johnston, who works in retail. "I'm at the age where there was no way I was going to be able to recover that. The very security I counted on was going to be gone."

The lesson here is that you've got to reach out for help.

Johnston contacted the hospital and laid out her situation. After she sent financial statements and pay stubs to the hospital, it slashed the bill to $9,000 _ an 82 percent decrease _ which Johnston will pay over time.

"It's just stepping outside your comfort zone and being open and saying, 'This is the way it is. Is there anything you can do to help me?' "

Another option is to take advantage of help in your community, such as food pantries, churches, charities and financial counseling agencies.

Jennifer Nelson, 41, of Dallas sought help from Consumer Credit Counseling Service of North Central Texas after her divorce in 1995 left her deep in debt.

"I was unemployed at the time, so that was a double whammy," Nelson said.

She moved in with her parents and eventually found work as an insurance payment poster. The counseling service helped her develop a debt management plan to pay off her creditors.

"It had taken a little bit, but I finally had gotten back on my feet," Nelson said.

Then, just as she was starting pay down her debt, she got laid off last July and she's been looking for a job ever since.

"I have sold almost everything I own," said Nelson, who still lives with her parents. "I have been cleaning houses, I've been having garage sales, doing a lot of selling clothes to consignment stores. I even have gotten to the point where I have sold my own blood."

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Leverage any skills you may have that could benefit others. Maybe you can provide bookkeeping services in exchange for haircuts for you and your family. If your roof needs repair, maybe you can repair the roofer's computer.

"If you have a need for personal services, consider what you can offer your service provider," said debt counselor Clarky Davis, also known as the "The Debt Diva." "It could be as easy as providing transportation or trading services. Be specific about your needs and what you can offer."

It may not be easy, it may not be painless, but there are ways to deal with unexpected emergencies. You just may need to get creative.

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© 2009, The Dallas Morning News.