Today, many people have been blindsided by an unexpected financial emergency and don’t know what to do. A job loss, medical expenses, or an emergency home or car repair can be incredibly stressful. The bills still need to be paid, the utilities need to stay on, and you need to put food on the table, so how should you cope with a financial crisis?
First, sit down and carefully evaluate your situation. Panic won’t solve anything and will lead to additional stress. Carefully evaluating your situation will help ensure you make good choices. What caused this financial emergency? Before you can look at ways to resolve the situation, you need to understand the root cause. Is it a sudden loss of income? Mounting expenses that you can’t keep up with? Are you living beyond your means? Are you inadequately insured? Your plan of attack will need to address the root of the problem.
Next, prioritize expenses. Some bills need to be paid before others. At the top of your list are food and shelter. It’s not worth risking foreclosure to keep your cable or cell phone bill current. Don’t pay something that will put you in jeopardy of being unable to pay for a real necessity. Once you’ve prioritized which bills are the most important, you can look for expenses to cut. While cost-cutting might not be much fun, it might keep you from slipping into an even deeper financial hole. Do you require those premium movie channels or satellite package? Can you survive without that expensive cell phone plan, or eliminate your landline telephone completely? If you regularly go out to eat, consider cutting back or eating at home entirely. If you were to only find five different ways to save $20 each month, you’ve instantly freed up $100 that can go towards your most important expenses.
Then negotiate with lenders. If you’re having trouble with credit cards, medical bills, or even your mortgage, the first thing you should do is call your lender. Believe it or not, it’s in their best interest to help you make your payments, even if it means a lower interest rate or extending the terms. People mistakenly wait until they get severely delinquent before contacting their lenders, and by then, they’re less eager to work with you. If you know that money is getting tight and you might need help, call them right away. Don’t wait for the threatening letters to start coming in the mail before taking action.
Find extra money. Ideally, you want to have some money set aside in an emergency fund to help pay for any unexpected expenses, but this isn’t always possible. Where do you turn when you’ve exhausted your savings account? You can always try to get a loan or use credit cards, but these may only make the problem worse. While borrowing money can provide quick access to cash, it can also come with high interest rates and a new monthly payment. If you’re experiencing a financial hardship for an extended period of time, you may find yourself in a downward spiral that is nearly impossible to recover from.
Another option could be to check with friends and family. Nobody likes to ask for money, but a little bit of help from a loved one might be all that you need to get through the rough patch. Of course this can also put a strain on some relationships, so proceed with caution.
And finally, you may have some money available via investments or in retirement accounts. Generally speaking, withdrawing money from your retirement accounts is a bad idea as it can put your retirement security in jeopardy, but it could also be enough to keep you from going into even further financial trouble.