For most of us, financial emergencies are an inevitable part of life. Cars break down. Someone needs urgent medical care. Layoffs happen.
Here are some guidelines to follow when crisis is unavoidable.
First, Define Emergency
Sometimes, we shift into crisis mode for no reason.
Don’t deplete your savings account to buy Christmas presents or rent a limo for your daughter’s prom. Neither is an emergency expense. There are 364 days to plan for the holidays. There are 18 years to save for the prom.
True emergencies pertain to health, a well-maintained roof over your head and transportation to your job.
How you respond to a money crisis could determine whether you land on your feet or face decades of mounting debt. Maintaining a positive attitude is crucial.
The worst thing to do is panic. Making rash, emotional decisions could affect your financial health for years to come. Resist the temptation to tap easy resources for fast cash. A cash advance on your credit card will incur a fee, and the interest charge – which starts to accrue immediately – could be as high as 20 percent. Payday loans are even more exorbitant.
Another poor reaction is denial. Refusing to look at financial statements or deal with creditors will only make matters worse. Instead, confront the problem and work to rectify it.
Take These Proactive Steps
1. Seek Counsel
Talk about your problems with someone you trust. This might be a parent, close friend, minister or banker with whom you’ve had a long relationship. Be open to the wisdom of others. They may suggest ideas that you hadn’t thought of.
2. Contact Your Creditors
Letting your creditors know about your situation will save you a world of hurt down the road. Let’s say that you were in a car accident and missed a lot of work. A few phone calls might prevent a negative mark on your credit report.
Credit card companies may accept an interest-only payment or waive late fees for a month or two, especially if you’re a long-time customer in good standing. A bank or credit union might be willing to defer a house or car payment to the end of the loan term. Utility companies will usually extend the grace period or offer payment plans. Most work with other agencies, like United Way, to help struggling people keep the lights on.
Even the IRS will set up a payment plan if you owe taxes.
3. Change Spending Habits
Continuing to spend as you normally do could result in a car repossession or home foreclosure.
Make an itemized list of your greatest needs:
- Health care or prescription medicines
- Transportation to your job
Make mortgage and car payments before you pay credit cards. Everything else can wait.
4. Increase Income and Free Up Cash
Take a part-time job with a flexible schedule, or find a way to earn online until you catch up.
Sell something. Online platforms make it easier than ever to come into quick cash when every little bit helps. Here are some things you could consider selling:
- Fine clothing
- China, flatware or kitchen appliances
- Collectibles like baseball cards or comic books
- Season tickets to sporting events
- Services like writing or consulting
Ways to save money are staring most of us in the face. Freeing up cash just takes a little humbleness and creativity.
Trade in your car for a less expensive model, or save on gas by taking public transportation.
Go without cable TV for a while, or call your provider and ask to speak to a plan specialist. Explain why you can no longer afford the program you agreed to, and ask if there are cheaper options. Sometimes, unadvertised promotions can reduce your monthly bill by as much as half.
Car insurance companies offer a number of discounts. Doctors and dentists, who don’t like waiting for reimbursement from insurance companies, typically offer a 10-15 percent discount for paying in cash.
5. Don’t Make Matters Worse
Before you refinance your home, tap your retirement account or borrow from a relative, make sure that you’ve gotten sound advice from reliable sources. The decisions you make now have long-term impact.
Remember That It’s All Relative
Finally, it never hurts to put life’s misfortunes in perspective. It’s a plumbing problem rather than a foreclosure. It’s a broken leg rather than heart surgery. It’s a very sick pet rather than a very sick loved one.
Counting your blessings will make money matters seem a lot less bleak.