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When your income drops

With poor weather affecting Louisiana harvests last fall, the state's farmers, rural residents who depend on agriculture for their livelihoods and others may be facing tough economic times.

“If this happens to you, don't panic,” says Jeanette Tucker, a family economics specialist with the LSU AgCenter. “Allow time to get over the initial shock, and then start making plans.”

A sudden reduction in family income can be a traumatic experience, both psychologically and financially, but the hardship can be minimized with a positive approach, Tucker says.

“Many aspects of your life will be different, at least for a while,” Tucker says. “But you and your family can still maintain control of your household financial affairs.”

The LSU AgCenter specialist recommends making adjustments immediately and developing a plan both to pay creditors and protect family well-being.

Tucker says to start by examining your family's current financial position or net worth — the difference between what you own and what you owe.

“If you follow the principles of good financial management, you'll have the equivalent of a few months of income in liquid savings.” Tucker says.

She recommends using funds from passbook savings first. If it's necessary to cash in a certificate of deposit, it may be less costly to get a short-term loan using the CD as collateral. Another option might be to borrow against a cash value life insurance policy.

“Remember that a loan must be paid back and that emergency savings should be replenished as soon as possible,” Tucker says.

The family economist also emphasizes taking immediate action to stop all excess spending.

“Research has found that families do not adjust their lifestyles for about six months after their income is reduced. But that waiting time before taking such actions can spell disaster,” she says.

Tucker says families can reduce stress and adjust to living on a reduced income by following a few basic steps.

She suggests starting with a list of the family's most important expenses and a spending plan — giving higher priority to fixed expenses, including mortgage or rent, installment credit, insurance and utilities.

After allowing for fixed payments, a family can then adjust spending for things such as food, clothing, recreation and household expenses to fit its current income.

“Follow your spending plan carefully. With less income, each spending decision is critical,” Tucker says.

Tucker suggests being creative in determining how to cut expenditures and offers some suggestions, including discussing significant purchases, controlling impulse buying and comparison shopping.

“Buy specials, use coupons, shop at price-competitive stores, purchase in bulk when appropriate and seek cash discounts,” Tucker says while suggesting some purchases might be postponed and that buying on credit should be avoided.

The LSU AgCenter family economist advises families to maintain insurance — making sure they're not paying for duplicate coverage — and to keep essential medical and dental appointments.

“Inaction may prove costly in the long run,” she warns, adding that health care professionals may be willing to negotiate a payment schedule if details are worked out in advance.

Tucker also warns against putting off regular payments on consumer debt.

“The largest and most essential payment is likely your mortgage,” she says. “If it's unmanageable, ask your lender if you can refinance or pay only the interest for a short period of time.”

For other debts, Tucker recommends contacting the lenders immediately to explain the situation and propose alternate payment plans. If possible, schedule appointments and talk with the people in charge.

You may need to reduce payments on revolving accounts to the minimum until your income increases and you can resume your regular payment schedule. This will increase the total amount you must pay for the debt, but it will ease your present financial burden.

As a final alternative to repaying debt, consider a consolidation loan, Tucker says. These loans enable consumers to pay all bills at once and then make one payment monthly for a large loan.

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