No one ever wishes to find themselves in a position of financial hardship but unfortunately, sometimes it happens. Contrary to some popular opinions, financial hardships aren't always as a result of financial irresponsibility. As a matter of fact, many people experience financial hardship that puts them in a position where they can't pay their bills for reasons other than this.
Causes of financial hardship
Some life transitions that could impact someone financially include:
- Personal or family health issues or injury
- Long term reduction or loss of income
- Exiting a bad relationship or escaping domestic violence
- Death of a spouse or partner
It could also be that someone experiencing difficulty right now may have just started their financial wellness journey before getting hit by a life-changing situation that derailed their plans.
That being said, facing financial difficulties can be extremely stressful. It can even impact your physical and mental health and accelerate aging as a result. And so this article is here to guide you through dealing with those difficult situations so you can get ahead as soon as possible.
Warning signs of financial problems
One way you can get a head start on working through your financial issues is if you can identify the root cause early. Some warning signs that you are facing financial difficulty could include:
- Relying on credit to pay for your day to day essentials
- High or maxed out credit card balances
- Resorting to high-interest debt like payday loans or cash advances
- No emergency savings or sinking funds
- Constantly paying late and/or overdraft fees
- Poor credit scores due to late payments and a high debt to income ratio
- Not being able to meet your minimum payment obligations
Recognizing these warning signs is one of the first steps towards creating a financial plan so you can turn things around.
How to get through financial hardships
That being said, here are some key steps to help you establish plans to improve your financial situation.
1. Adjust your budget to accommodate changes in your income
If you are experiencing financial difficulty, it's important to adjust your budget to accommodate any changes in your income. For instance, if you have lost your job or experienced a significant reduction in your income, you might need to start budgeting for a variable income.
No income coming in? Having to leverage debt to get by? In this scenario, it's even more important to budget your spending so you can minimize how much debt you take on. Next, you can create a debt repayment plan that you keep handy, for when your income situation improves. This way you can hit the ground running when it does.
You also want to adjust your budget to accommodate any major bills that have come up. While you may not be able to pay off your debts in their entirety right now, understanding your current spending is important.
Your main goal should be to focus on your core essentials first which are food, medicines, safe housing, core utilities, and transportation.
By adjusting your budget, you may find you are spending in a category that you can do without or can cut back on. This realization can help you move the funds over towards more pressing bills.
2. Communicate with your service providers
The last thing you want is to lose access to water, electricity, internet service (since so many people work from home), or another core utility. To avoid this, you want to make sure you contact your service providers as soon as possible to let them know you are experiencing financial difficulties.
Many providers are willing to work with you and you can come to an agreement well in advance of any shut-off actions going into effect. You'll also be able to save yourself from the stress of your accounts assessing excessive late fees or going into collections simply by communicating your situation.
3. Determine what financial hardship programs your lenders are offering
If you have debt obligations your lender might offer some sort of financial hardship program that can help while you work on getting back on your feet. From car loans to credit cards to student loans, lenders typically have a variety of hardship programs. Rent and mortgage assistance may also be an option for you.
These programs might include interest waivers, reduced payments, or payment deferrals. You, however, want to make sure you fully understand the details of any program you commit to. Specifically:
- Any fees that will be assessed as part of the hardship program agreement
- The details of how payments will be made during the program
- Whether or not a lump sum is expected anytime during or at the end of the program
You may also need to show proof of hardship in the form of a hardship letter. This letter is essentially a detailed explanation of your hardship and the impact it's having on your finances.
4. Negotiate bills in collections
So many people with bills in collections are terrified of having to deal with them. Some people, on the other hand, think that debt in collections is not something they can do anything about.
To set the record straight, there's nothing and no one to be afraid of when it comes to dealing with your bills in collections. The worst thing that can happen is that you get a "no" when you attempt to negotiate. In addition, not dealing with bills in collections can have a negative long term impact to your credit.
Negotiating bills after collection actions have been taken is still worthwhile. You might be able to get negative remarks removed from your credit if you come to a payment agreement. And in some instances, you might get part of the balance forgiven or dismissed.
Just make sure you ask questions so you understand the specifics of any agreement including any reporting that will be made to the credit bureaus.
5. Find a side gig for extra income
Earning extra cash from a side gig or part-time job can help in a major way during financial hardship if you have the hours to spare. A side gig or part-time job doesn't have to be a permanent situation but getting one temporarily can really help you get ahead.
You'll want to take extra care to make sure the money you earn is going towards your financial obligations and getting caught up with your bills. The last thing you want is to work all those extra hours and have the money slip away.
6. Don't give up
As mentioned earlier, financial hardship can arise for different reasons. The good news is that you can recover from it and thrive. So don't be discouraged and don't give up.
It might be difficult in the interim and you might go through a wave of emotions as it relates to your finances but you can totally get through this. Focus on setting aside the self-judgment, don't allow other people to judge you, learn from your mistakes, and move forward.
You can also set goals to work on your self-improvement in addition to improve your finances. Our free Clever Girl Finance courses can help too. Whatever your situation might be right now, remember the daybreak always comes; even after the darkest night. You've got this.