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High tides and higher interest rates: Wading through financial storms

By Helyn Trickey
Special to CNN
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(CNN) -- Danny Rayburn is haunted by hurricanes.

In 2004, Hurricane Ivan, a vicious Category 3 storm, walloped Rayburn's condominium in Perdido Key, Florida -- a home he bought for investment purposes and did not live in.

The next year, Hurricane Katrina roared through Bay St. Louis, Mississippi, destroying Rayburn's home and leaving thousands of others homeless.

This time the loss was a body blow. He lost his job and house on the same day, and the disasters quickly began eroding his savings and landed him in debt.

Many Americans, like Rayburn, are one disastrous moment away from financial insolvency. In this era of limited savings and an increased reliance on credit, a tornado, flood, fire, illness or accident could mean bankruptcy or worse.

"A lot of people are just a couple of paychecks away from being homeless," Rayburn said.

Rayburn, a one-time respiratory therapist who'd decided to bartend for a living, handpicked the home in Bay St. Louis -- located just a block or so from the beach -- to enjoy his retirement years.

"I was your average, everyday American worker, buzzing right along somewhere between happy and homeless," Rayburn, 50, said of his life before Katrina in a telephone interview from Tupelo, Mississippi.

Rayburn had nothing left in Katrina's aftermath. His water-damaged belongings were strewn across three or four blocks; a packet of photos he'd had developed at Wal-Mart before the storm was found a half mile from his leveled home.

More than 350,000 homes were significantly damaged or destroyed across the Gulf Coast by Hurricanes Katrina and Rita, according to the Red Cross.

Rayburn went to Tupelo, where he lived with relatives for several weeks before renting a home and finding a bartending job.

Soon, though, Rayburn had run through his small savings and started living off his credit cards to pay for essentials.

To complicate matters, his mail delivery was disrupted by the massive storm. If he received bills at all, they were usually late by the time they found Rayburn at his new address.

Creditors began to hound him. "I just about had an anxiety attack every time I'd see the mailman pull up in my driveway," he said.

The road out of debt

Less than a month after Katrina hit, Rayburn decided to go see Cathy Davis, a financial counselor at Consumer Credit Services of Greater New Orleans. Organizations like CCS offer confidential, free or low-cost debt and credit counseling services.

Rayburn had roughly $20,000 in credit card debt, accruing interest at rates as high as 26 and 33 percent, he said. He had no savings, and if he'd elected to claim bankruptcy, Rayburn would have had to charge the cost on his credit card.

"Given his circumstances, no one would've really thought twice about him choosing not to pay it back," Davis said.

They looked over his financial situation and determined a monthly budget that he could live with. Next, Rayburn cut up all of his credit cards.

Consumer Credit Services then bargained with Rayburn's creditors to get him a better interest rate on his debt. Rayburn paid CCS a lump sum of money each month that, in turn, was distributed to each of his creditors.

Rayburn was also able to apply insurance money he received for his home toward the debt. He paid it off in November 2006.

Rayburn's experience highlights some steps people who are in debt can take to lighten the burden.

The most important thing to do in the wake of a personal or natural disaster is to let creditors know about the situation, Davis said. Often, creditors can place a hardship moratorium on an account. Katrina victims generally received a three- to six-month payment reprieve, but the moratoriums can vary.

During the aftermath of disasters like Hurricane Katrina and the 9/11 terror attacks, creditors waived late charges, especially with clients who did not have a history of payment problems, said Trish Lynch, a financial specialist with Clear Point Financial, a nonprofit debt and credit management organization.

Experts also recommend storing bank records, important contact information for creditors and insurance companies, as well as copies of social security cards and drivers licenses in a safe, second location.

And don't be too proud to ask for help from relief agencies. Organizations like the American Red Cross, The Salvation Army and local churches sometimes have short-term money available during disasters.

If sound legal advice is what you need, The Young Lawyers Division of The American Bar Association offers free legal consultation for low-income disaster victims, according to Lynch.

Don't avoid the boss during your crisis, either. Some employers have assistance programs that can help buy food or pay bills as you get back on your feet.

Lynch also warned against opening new credit lines to make up for the losses and making "the problem worse six months down the road."

Also, check your credit report often after a disaster to make sure it doesn't contain any false information. Add a letter of explanation to your official credit report explaining the difficulties you've weathered and the steps you've taken to get back on track.

When tax season rolls around, make sure you check with the IRS, because casualty losses may add up to deductions on your taxes.

Rayburn is slowly picking up the pieces of his life, although his retirement plan to live in a beachside community "went up in the wind of a hurricane."

Even if he's not rebuilding his physical house anywhere near the water, Rayburn's financial house is newly constructed on solid ground.

"You have to go on. You cannot just lie down and quit," he says. "You just pick out what you have in the yard and take it somewhere else."

Disasters like Hurricane Katrina, which left thousands of homes damaged across the Gulf Coast, could leave the unprepared in catastrophic debt.


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