If a crisis keeps you from paying your bills, a financial backup plan can keep creditors at bay
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That’s what happened to Becky Blanton of Charlottesville, Virginia, when she was unexpectedly hospitalized for about two weeks. Since there was no one to pick up the slack, she missed a few bill payments. To make matters worse, “my car insurance wasn’t paid, so it was canceled and before I could get more insurance I had my license suspended when the insurance company reported the cancellation to the state,” Blanton says.
Just as you should have a contingency plan to handle child care and work obligations, you should consider the state of your money. “Every single person, even those just starting out, should think about a financial back-up plan,” says Kara Stefan, author of “Head of Household: Money Management for Single Parents.” Consider these steps to keep your finances in order no matter what life has in store.
Paying just $25 to $50 extra on the utility bill each month quickly adds up to a month’s credit in case of an emergency.
|— Kara Stefan|
Author, “Head of Household: Money Management for Single Parents.”
Organize your obligations. In order to create a backup plan, you must know what financial tasks need to be done from month to month. That includes identifying all bills and when they need to be paid. Pay particular attention to bills in which a missed payment would be hard to recover from, says Courtney Smith, president of Benefit Payee Services, a daily money management company in Denver. For example, if you miss a life insurance payment, the policy could lapse.
Decide what can be automated. Putting your finances on auto pilot is a great idea, Stefan says. If you’re comfortable doing so, have bills paid directly from your checking account and automate transfers to your company retirement plan and savings account each month. Another way to avoid a lapse in payments is to pay bills in advance, a practice Blanton has adopted. “Paying just $25 to $50 extra on the utility bill each month quickly adds up to a month’s credit in case of an emergency,” she says.
Identify your point person. If you’d rather not have funds automatically deducted from your accounts, you’ll need to find someone who can take over your financial obligations in a pinch. Obviously this should be someone who is responsible. “You want to make sure your designated person is someone you can trust and someone you feel comfortable sharing your personal information with,” says Heather Murray, manager of education and regulatory compliance for Advantage Credit Counseling Service in Pittsburgh. Then broach the subject with them to make sure they’d be willing to do it.
Consider a professional. Some people would rather not put their finances in the hands of family or friends. In that case, you can hire a daily money manager to step in and take care of your bills, says Smith, who is president of the American Association of Daily Money Managers. You can even engage their services in advance, creating what Smith calls a “pre-made arrangement” so the money manager will know what to do if you need them in the future.
Take care of the logistics. Set up a file or electronic document with instructions and information your backup person will need such as user names and passwords for online accounts. Also, be clear about what you want them to do. “It’s important to outline what the expectations are for this arrangement,” Murray says.
You want to make sure your designated person is someone you can trust and someone you feel comfortable sharing your personal information with.
|— Heather Murray|
Advantage Credit Counseling Service
Make sure they have everything they need to get the job done. Will you give them access to your checkbook? Will they have to sign into your online banking account to transfer the money? For example, Blanton has a prepaid debit card with $300 on it that stays in her desk where a friend can find it to make bill payments in an emergency. If you are hesitant to have someone pay your bills, make a list of your creditors and their phone numbers and have your backup person call and explain your situation. Often in emergencies, creditors will give you extra time to get the payment in.
Consider the legalities. Any time you’re asking someone to make financial decisions for you, you want to cover your legal bases. It’s a good idea to consult with an attorney about the arrangement because you may need to sign legal documents authorizing your designated representative to act on your behalf, Murray says. At the very least, write up an agreement outlining everything this person should do and both of you sign it.
When it comes to managing your finances, the best time to come up with a contingency plan is before you need it, Blanton says. “Be proactive and set things up in advance.