When the worst happens, there are ways you can cope with a financial crisis.
Prioritize expenses Carefully assess and prioritize all of your bills and expenses.
Then, look for areas that you can cut right away.
Although food and shelter should be your top priority, other items such as cable, subscriptions or memberships can easily be cut.
Anything that is not a complete necessity should be reduced or eliminated - luxuries aren't worth keeping around if they could jeopardize your ability to pay for a necessity.
Talk to creditors It may come as a surprise, but it's in the best interest of creditors to help you make your payments - even if that means extending a lower interest rate or negotiating alternative terms.
Don't wait until you're already severely delinquent in payments; contact your lenders first thing.
Credit card companies may extend a lower interest rate, create an alternative payment schedule or temporarily delay payments.
Your bank or mortgage company can temporarily or permanently modify your loan to make payments more affordable.
Some utility companies, including electricity and gas, offer special programs to help make payments affordable for those experiencing financial hardship.
Consider seeking assistance Many assistance programs may be able to help those experiencing a financial hardship.
For example, people who have lost their jobs may qualify for unemployment benefits.
Additionally, COBRA offers an affordable option to continue with health benefits.
For those who have been injured at work, workers' compensation may be able to provide assistance.
Furthermore, state or federal benefits including Medicaid, Social Security and Disability can offer aid to those who qualify.
Find other income options When it comes to managing a financial emergency, a few ways to find extra income include: Selling assets - Whether you sell small items in a garage sale or a bigger item such as a car, selling assets can help accrue extra income to pay for necessities.
Borrowing against your home - An equity loan or line of credit can help you pay off emergency expenses.
However, keep in mind that borrowing against the equity in your home may put your home at risk if you are unable to make the scheduled payments.
Deferring retirement contributions - Instead of allocating retirement contributions, channel this money toward your current financial emergency.
If debt becomes unmanageable If you find that there are no options available for you to overcome the obstacles created by a financial emergency, don't give up hope.
Although bankruptcy is a solution for extreme situations, it also negatively affects your credit report for up to a decade.
Effective bankruptcy alternatives should be considered, including credit counseling or debt settlement.
Credit Counseling vs.
Debt Settlement Credit counseling is a debt relief process where your interest and payment terms can be modified for your benefit, allowing a quicker debt payoff and lowered monthly payments.
Debt settlement is a more aggressive debt relief solution, and unlike credit counseling, you will not have to repay the full amount of debt owed to your creditor.
- Credit Counseling - $5,000 minimum debt required for participation.
- Debt Settlement - $10,000 minimum debt required for participation.
- Credit Counseling - Designed for credit card debt.
- Debt Settlement - Designed for unsecured debts, including credit cards, gas/retail cards, personal loans and medical bills.
- Credit Counseling - Debts expected to be repaid in full, over 5-7 years.
- Debt Settlement - Repayment of approximately 50% of the original balance with a program length approximately 2-3 years.
- Credit Counseling - Long-established debt relief process, widely accepted by creditors, available in all states.
- Debt Settlement - Newer, and less accepted debt relief process, and often not available in all states.
The debt relief industry has an unfortunate reputation of harboring frauds and scams.
Be thorough with your research and find a long-standing reputable company to provide the assistance you need.