The trickiest aspect of financial hardship is it can strike anyone at any time. While it’s ideal to have an emergency fund in place to handle the financial damages, nearly one in three U.S. adults (28 percent) have no emergency savings on hand. Furthermore, some financial hardships cost more than the average emergency fund.
It’s understandable to feel overwhelmed when the unexpected happens. But it’s also important to remember there are always actions you can take to help minimize the damage and get things back on track.
Here are four actions to take when financial hardship strikes.
Tighten Your Spending
Start by pausing all non-essential spending in your budget and rerouting those funds toward addressing the hardship. This will mean making some sacrifices — like cooking inexpensive meals at home rather than dining out — but it will also go a long way toward addressing the problem.
Not sure where to start? Go through your credit and debit card statements to find all the services and memberships for which you’re currently enrolled. Cancel anything you can live without, redundant services and any memberships you underutilize for the price. People often overlook how much they’re spending on recurring subscriptions, so there’s often an opportunity to downsize in this department.
Search for Extra Income Streams
Now it’s time to consider how you can bring in some extra income during this difficult time. Taking on a side hustle is one possibility. You may be able to negotiate a raise or bonus at work, depending on your position and company. There are probably items sitting around your house you could sell online for some extra cash, too. Any extra money you can make will soften the blow.
Compare Personal Loans
If you had to put the cost of the financial hardship on credit, you’re now on the hook for that balance — or possibly multiple balances, spread across several accounts. This can make it incredibly stressful to pay bills, plus you’ll soon be facing higher-than-average interest rates on that debt.
Some people find debt consolidation — or taking out a special loan to cover those high-interest debts — preferable. It requires only one monthly payment instead of several and may reduce the amount of interest you have to pay overall.
Effectively consolidating debts typically requires a pretty strong credit score. It’s also important to work with a reputable lender to make sure you won’t actually be paying more over the lifetime of the loan than you would addressing your credit card debt head on.
Try to Negotiate with Lenders
Another option during times of financial duress is to negotiate with lenders. This can take a few different forms.
Those strapped with medical bills can try these tactics:
- Go over bills with a fine-toothed comb, looking for errors and asking for clarification on any charges you don’t understand.
- Ask if you qualify for any discounts or hardship assistance programs.
- Visit the hospital or practice’s billing department directly to explain your situation and try to work out a repayment plan.
You can meet with a credit counselor at a non-profit agency to go over your financial situation, then find out if you’re eligible for a debt management plan (DMP). Your counselor may be able to negotiate down interest rates and fees on what you owe, then put you on a multi-year plan to pay it back.
Debt settlement is another option for those facing a great deal of unsecured debt. This approach involves trying to negotiate down the amount you owe with creditors — who may otherwise be afraid you’ll default on those balances.
When financial hardship strikes, know what actions can help you minimize the collateral damage.
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