The thought of something bad happening that could hurt your finances, like losing your job, getting sick, getting in a car accident, or a pandemic, can keep anyone up at night. But if you’re ready, the possibility of something expensive and out of your control happening doesn’t seem as scary. Here are some ways to handle a financial crisis.
Fear and dread can come on quickly after a crisis. You might even be scared to open the mail because you don’t want to see another bill. When you feel like the world is closing in on you, it’s hard to think straight. Remember that this crisis is only temporary and that you can and will get through it in time.
Panicking might be your first instinct, but it won’t help you get anywhere. Recognize how you feel, but try to keep your cool as much as possible.
Find out what to avoid
When you need help, you might not know where to go. Credit cards and payday loans are by far the worst things you can use for money.
It’s easy to get into credit card debt. It can take years to pay off credit card debt, especially after a financial crisis. The only time you should use a credit card in an emergency is when you have no other choice. Paying off that debt should be your top priority as soon as your crisis is over.
Payday lenders, on the other hand, look for people who are in bad situations on purpose. People use these loans because they think they have no other options. They end up with huge amounts of debt at very high-interest rates. Predatory lending hurts a lot of people and makes them worse off than they were before. Don’t use these kinds of services under any circumstances.
Which bills must you pay right away? Many types of debt, like your mortgage, car loan, and credit cards, won’t be officially reported as late until they are more than 30 days late. Are there bills that are coming due or that have already come due? Do you make enough money to pay off everything you owe?
There are a few things you can do if you aren’t sure you can pay all your bills. Stopping to pay is the worst thing you can do. That will only put you further behind, and you could end up paying a lot of overdraft and late fees and hurting your credit score.
One option is to call each company that owes you money, explain your situation, and ask if you can get more time to pay or if you can work with them to make a payment plan. You will need to go back to your bills and reorder them based on their due dates and any new information. Pay the bills that are due the soonest.
If you still don’t have enough money, you will need to find a way to cut your costs by a lot. Are there any bills you can cut back on or stop altogether? Start with the money you’re wasting. Things like having fun and going out to eat should stop. If you stop paying for things like magazines, gym memberships, and cable, you can save a lot of money. Next, figure out what you don’t need as much of. Find ways to save money on gas, groceries, utilities, and other things until your problem is solved.
Check on your finances every day
Make it a point to check in on your money every day until you get your finances in order. Check your bank accounts, credit card balances, bills, budget, and when your money will be coming in. During a crisis, it’s easy to lose focus and get disorganized, which will only make your money problems worse. If you aren’t careful, overdraft or late fees can add up quickly.
Get a better deal on your credit card
If you have a balance, it could be very helpful to move that balance to a card with a lower interest rate. If you pay less interest, you can pay off your debt faster or give yourself a little more room in your monthly budget. Just make sure that the money you save from the lower interest rate is more than the fee for transferring your balance. If you’re moving your balance to a new card with a low introductory annual percentage rate (APR), try to pay off your balance before your rate goes up during the introductory period.
You should also ask your current credit card company if they can lower your monthly interest rate. Companies do this sometimes to keep you as a customer because it’s cheaper to keep an old customer than to get a new one.
Make a plan for the future to protect your money
It will take time to get yourself out of a financial hole, but you can do it with hard work and smart money moves. Once you’re back on your feet, it’s time to take steps to make sure the next financial crisis doesn’t put you back in the same hole.
Start by putting an emergency fund at the top of your list of things to do so that you can handle another financial storm. Many experts say that you should save up between three and six months of living costs in this fund. If you have that cushion, it won’t hurt as much if you lose your job, have a medical emergency, or face some other major financial setback.
Life is unpredictable, but if there’s one thing you can do to avoid disaster, it’s to be ready and careful. With the right planning, a possible financial disaster can turn into a short-term setback.