Chapter 6

Budget and Debt Reduction

Setting a Budget

Setting a budget is fairly straightforward. Compute how much income your family will have while you are away then establish where that money is best spent.

Of course the highest priorities are going to be housing, food, medications, utilities and transportation. If your family can afford it, something should be budgeted to be put on your prison commissary account.

To save the expense of using Western Union or a Postal Money Order, your family should consider mailing money to your account using a personal check to the P.O. Box in Des Moines. It will take approximately two weeks for a personal check to clear, but if they send it on a monthly basis before you are in bad need, it could save hundreds of dollars a year.

Discussion of the significance of money in prison and how to send money to your account is discussed in Chapter 9.

Included in this chapter is a Cash Flow Monitoring Form to track expenses. To use if effectively every dollar needs to be accounted for each month.

Help your family use the Cash Flow Monitoring Form to set priorities and evaluate ways to save money. A surprising amount may be spent on dining out or shopping that could best be used toward other things.

Set Priorities

Involve your family in setting financial goals and share ideas on how best to obtain them.

By setting priorities and financial limits your family will have something to shoot for each month. How close can they come to attaining their goals each month?

Raise Cash

After you have assessed your financial net worth, look at possessions you can sell to raise cash and reduce debt.

Unless you are one of the few well-off, consider selling everything that is not necessary for daily life. Many new inmates try to sell their homes, boats, etc. only when faced with foreclosure or repossession. Forethought can prevent foreclosure.

What to Sell

Everything that has a monthly payment, insurance or regular maintenance cost/care should be evaluated for sale without sentiment. Logic has got to take precedent over emotional values. Soon you will be gone but the burden of these properties will remain with your family.

Next take a look at property you can sell to raise cash. Land, antiques, collectibles or hobbies can bring in money your family might need later (or now).

You’ll be able to sell these valuables quicker than anyone else. You are likely to sell them for more than your family can.

Where to Sell

E-bay and Craigslist are obvious choices for some items. They are easy to list with millions of potential buyers. Also look for local or online dealers who may be willing to give you a fair (wholesale) price if you have a lot of special items.

Local estate sellers and auctioneers can quickly reduce your inventory of furniture and other household items with little effort on your part. The Yellow Pages should have local experts who can professionally sell unneeded furnishings.

Garage sales always attract crowds. All the little things can add up to a lot. Turn junk or unused items into cash.

It is far better to sell household goods rather than pay for storage rental space. If you total up how much you’ll pay for a building versus how much your belongings are worth, you’ll see selling makes a lot of sense.

House/Land Properties

Selling your house and moving into an apartment (or parents) may not be appealing but it makes sense in a number of ways. Can your family really afford to keep up monthly house payments? What about maintenance?

Selling your house can raise thousands or even tens of thousands of dollars that can be saved for emergencies or cover projected budget short falls.

What about lawn care and pest control? Can your family afford the regular maintenance expenses? Lawn care is either and expense or a chore. Is your family capable of handling it?

Air conditioner, plumbing, roof and other unscheduled problems occur countless times each year. Maybe you fix them yourself without even thinking about it. Who will take care of these problems?

Boats/Cars/Recreational Vehicles

Boats, cars and “big toys” generally depreciate in value even if they are not used. They take up space while creating the added burden of insurance and regular maintenance costs. You can easily reacquire similar or better when you are reunited with your family.

Hobbies

Some people spend a sizeable amount of their disposable income on hobbies. Most of the fun of a hobby is finding or creating the next piece to add to the collection. Why not give someone else the satisfaction of adding to their collection while raising needed cash? You can restart your hobby with new seal when you are back home again.

Antiques, Paintings, Etc.

It is probable that you have more knowledge of what antiques, coins, and other specialties are worth and who would pay the most for them. Will your family treasure these items like you do? Can they protect them? Can they make it financially without selling them?

Liabilities

What you owe may not be what you have to pay. Going to prison with no foreseeable income does not have many advantages so why not use it to reduce/eliminate what you owe?

Your Advantage

Repossession or foreclosure is expensive. Banks and finance companies will work with you to avoid this. Credit card companies write-off billions each year in bad debt, they are quick to reduce on eliminate interest rates if it keeps you paying something.

Take advantage of knowing creditors are willing to negotiate to help you through this troubled time.

Know What You Want

Do you want to pay less than you owe? Do you want to eliminate interest charges while lowering monthly payments? Do you hope to defer or delay making some payments until the secured item is sold?

Know what concessions you hope to get out of each creditor. Have reasonable expectations but start out aggressive be willing to meet somewhere in the middle.

Be prepared to make a clear offer and see if they make a counter offer. Or tell them your situation then let them offer a solution. If they are fan off your target tell them. Be aggressive by having written goals.

Debt Reduction Strategies

Creditors may be willing to take less than you owe or at least reduce/eliminate the interest rate.

Compose a list of who you owe on the creditor list form. Don’t forget your home even if you don’t plan to sell it.

Settle for Less Than What is Owed

If you wish to try to settle for less than what you owe you’ll probably need to have the money in hand to pay it off immediately. Expect this to be a slow process; the first person you speak to may not be authorized to accept any reduced offers.

Reduce/Eliminate Interest Rate

Creditors will strive to get the principle back so reducing or eliminating the interest rate is a much easier task. As part of this offer see about reducing the monthly payments as well. Extending out an interest-free loan can aid in paying off other things more quickly.

The first person you speak to can probably do this for you. The creditor will expect you to make payments on time without late payments.

Deferring Payments

Deferring payments is not that difficult, it is just as easy for credit cards as it is house payments. If you wish an extended number of payment deferrals it maybe require to prove you are trying to sell the property.

Secured creditors may even agree to take what you can get for the property if you have to sell it for less than what is owed. If is far less costly for them than repo of foreclosure.

Mailing in the Keys

To avoid foreclosure or repossession you may negotiate turning over your house or car to the bank. This is less damaging to your credit rating than going through the legal process of taking it from you.

401(K)/IRA

An easy target for liquidation is retirement accounts. Bad idea, very bad idea. Only in the most dire of circumstances should this money be touched. There are early withdrawal penalties and tax liabilities to be considered. Consult with a tax advisor for all the ramifications.