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How to Cope With a Financial Crisis

How to Cope With a Financial Crisis

Have you just been blindsided by an unexpected financial emergency and don’t know what to do? Whether it’s a job loss, medical expenses, or an emergency home repair, an unexpected change in your financial situation 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 off, evaluate the Situation. Take a moment to sit down and carefully evaluate your situation. Understandably, you probably have a million things running through your head and being cool and collected is the last thing on your mind, but the ability to carefully evaluate your situation will. Try to, determine what caused this financial emergency. Before you can look at ways to resolve the situation, you need to understand the cause. Is it a sudden loss of income? Mounting expenses that you can’t keep up with? A natural disaster? While each situation can lead to similar burdens, your plan of attack will likely need to address the root of the problem to be effective in the long run.

Next, prioritize expenses.  Not all expenses are created equal. There are certain bills that need to be paid before others. Some of the most important items to put at the top of your list should be food and shelter. Is it worth risking foreclosure to keep your cable bill current? Obviously not, so carefully examine all of your expenses and determine which are the most important.

Once you’re established which bills are the most important, you can begin looking for expenses to cut out of your budget. While it might not be much fun to cut out some of the things you’re used to, it might be what’s necessary to keep you from slipping into an even deeper financial hole.

Look for ways to cut back or eliminate things completely. Think about those premium movie channels or satellite package. Maybe you can get by without an expensive cell phone plan, or maybe you eliminate your landline telephone completely. If you regularly go out to eat, consider cutting back or eating at home entirely.  If you can find five different ways to save $20 each month, you’ve instantly freed up $100 that can go towards necessary expenses.

If you’re having trouble with credit cards, medical bills, or even your mortgage, the first thing you should do is to call your lender. It is in their best interest to help you make your payments, even if it means a lower interest rate or extending the terms.  If you know that money is getting tight and you might need help, call them before you are severely delinquent.

Ideally, you 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?  While borrowing money can provide quick access to cash, it can also come with high interest rates and a new monthly payment.  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.

When it comes to a financial hardship, there may be assistance out there for you. In the event of a job loss, you may be entitled to unemployment benefits. If your job also provided your only source of health insurance, make sure you look into COBRA to see if you can maintain affordable health insurance. If you were injured at work, ask about workers’ compensation. In some situations, you may even qualify for state or federal benefits such as Medicaid, Social Security Disability, and more.

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