No one ever wishes to find themselves in a position of financial hardship but unfortunately, sometimes it happens. And contrary to some popular opinions, financial difficulties aren't always 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.
Examples of financial hardship
There are many life transitions that could impact someone financially. Some examples of financial hardship are:
- 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. Facing financial difficulties can be extremely stressful. It can even impact your physical and mental health and accelerate aging as a result.
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Are you suffering from one or more of these examples of financial hardship? If 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 hardship
One way you can get a head start on working through your financial hardship is if you can identify the root cause early. Some warning signs that you are facing financial difficulties 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 rebuild your life and improve your financial situation.
1. Adjust your budget to get through financial hardship
If you are experiencing financial difficulties, 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 an irregular 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 if facing severe financial hardship
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 severe financial 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 on your credit.
It is still worth trying to negotiate bills that are in collections or marked as a charge-off. If you come to a payment agreement, they may even remove the negative remarks on your credit report. And in some instances, they may forgive part of the balance or even dismiss it.
Just make sure you ask questions so you understand the specifics of any agreement, including any reporting that will be sent to the credit bureaus. Check out our tips on how to go about negotiating credit card debt.
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 severe 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. Stay away from payday loans
If you are facing severe financial hardship, then a payday loan may seem like the answer, but you should do your utmost to avoid them. These loans come with a high price of excessive interest and can cause you to spiral even further down into debt.
If you are still employed, you can find out if your employer offers a salary advance loan that could help you out in the short term. This would be a better alternative to a payday loan.
7. Don't give up if you are facing severe financial hardship
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 self-judgment, don't allow other people to judge you, learn from your mistakes, and move forward.
You can navigate severe financial hardship!
Use these steps to help you navigate through your financial difficulties. It will help you get back on track and possibly spare your credit to some extent.
You can also set goals to work on your self-improvement in addition to improving your finances. Whatever your situation might be right now, remember that daybreak always comes, even after the darkest night. You've got this!