Dealing with a financial crisis can be really tough, whether it's losing your job out of the blue, facing a medical issue, or any other financial challenge. Getting through these difficult times takes strength and a solid plan. If you're in a personal financial crisis, these steps may help put you on a much better path.
Key Takeaways
- Take care of your physical and mental health first — a financial crisis can affect both.
- Look into unemployment benefits, mortgage forbearance, medical bill assistance, and student loan relief before borrowing money.
- Contact your creditors directly. Most may be able to work out a payment plan instead of sending you to collections.
- Cut variable expenses and look for short-term ways to bring in extra income.
- Watch out for scams that target people during a financial crisis.
What Is a Personal Financial Crisis?
A personal financial crisis happens when a sudden event — job loss, a big medical bill, divorce, or a natural disaster — leaves you unable to cover your basic expenses. It can hit fast and hit anyone, even people who normally manage money well. The good news is that a financial crisis is usually temporary if you take the right steps early.
Step 1: Resolve to Take Care of Yourself
Financial meltdowns take an emotional and physical toll. Before you help anyone else, you need to help yourself.
Here’s a quick four-point list of self-care essentials that you can start planning to do immediately:
Commit to taking care of your physical health. Exercise can clear your head and help you cope with stress more positively. Try setting aside some time in the morning for a jog or a walk; even just 15 minutes per day
may significantly improve your mood.
Understand the disruption. Your sleep, energy levels, and self-esteem may be affected for a while. Take extra steps to adapt to these changes, such as going to bed earlier or taking additional self-care measures.
Start connecting with others. You may feel like withdrawing socially; resist the urge to isolate. Find someone you can trust and lean on for support. Also, consider being open and honest with family.
Watch out for unhealthy coping mechanisms. You may feel inclined to isolate yourself, self-medicate, or obsess over worst-case scenarios. These activities will likely make you feel worse; try to cope constructively with healthy ways to deal with stress instead.
Step 2: Look for Financial Emergency Assistance
There's no such thing as free money, even when you're in need. But sometimes help comes with strings attached... if you know where to look.
Here are some possible quick wins that may help you get a leg up, depending on your situation:
Unemployment Benefits
If you’ve lost your job recently, you may qualify for some relief from the government. Most states provide
unemployment benefits to workers who have lost their jobs through no fault of their own. To qualify, you must meet your state’s eligibility requirements.
Mortgage Forbearance
If you own a home, you may be allowed some wiggle room on your mortgage payments for a limited amount of time following a hardship. However, you'll need to contact your mortgage lender to find out whether this applies to you. In most cases, you will still have to pay the same amount (with interest), but some lenders will let you delay payments until you get back on your feet.
Hospital Financial Assistance
Paying
medical bills can be a struggle. Fortunately, many medical offices have a financial assistance policy that can reduce or sometimes eliminate medical debt in times of hardship. Policies vary from hospital to hospital, but it never hurts to ask your medical provider about what financial assistance is available to you.
Student Loan Deferment and Forbearance
Student loans are a major source of debt for many Americans, and they can be hard to manage during crises. If you're in a bind, there may be
some temporary relief you can look into.
Emergency Loan
If all else fails, taking out an
emergency loan may be better than defaulting on debt or accruing late-payment fees. If you need funds fast, you may be able to get a personal loan to cover short-term debt and repay it (with interest) in monthly installments.
Contact Your Creditors Before You Fall Behind
If you know you're going to miss a payment, it may be helpful to call your lender before the due date, not after. Many credit card companies, utility providers, and mortgage lenders have hardship programs that can lower your payment, temporarily pause it, or waive late fees. Explain what happened and ask what options are available to you. Lenders would generally prefer to work out a plan with you rather than send your account to collections.
Watch Out for Scams
People going through a financial crisis are common targets for scams. Be careful of anyone who contacts you first offering fast loans, debt "elimination," or a quick cash offer for your home. Before you share money or personal information, check that the company or person is legitimate. If an offer sounds too easy, it probably is.
Step 3: Assess Your Situation and Recover
It’s hard to look at the wreckage of a financial crisis. But knowing exactly what the damage is or will be could help you recover sooner.
In any financial picture, there are two main factors: expenses and income. And until the two are balanced, you won’t begin to cover financially. Here’s a quick way to do it:
Reduce Your Expenses
First, some quick
budgeting activities are in order. List out your expenses and separate them into two categories: fixed and variable.
Variable expenses are ones you can control. They include items such as entertainment spending, streaming subscriptions, and gym memberships. Fixed costs, on the other hand, are outside of your control (rent, car notes, etc.).
Dig extra deep when tallying variable expenses and brainstorm ways to reduce them. Think of items such as:
- Groceries
- Subscriptions
- Pet care
- Entertainment
- Birthdays
- Clothing
Increase Your Income
There are lots of ways to earn extra income: grass cutting, dog walking, becoming an Uber driver, etc.
However, since we're in the digital age, this article will focus on online ways to earn money. As of last year, three of the most popular online side hustles were testing websites and apps, providing transcription services, and taking online surveys.
If you enjoy surfing the Web, then
website and app testing might be a lucrative way to make some extra cash.
Another online option for extra cash is
online transcription work. If you’re a skilled typist, you could potentially earn money by taking audio and video files and using a keyboard to write out what is being said aloud.
Finally, if you need money fast and have the time, taking
online surveys could help
put a little extra cash in your pocket. Some platforms will pay users to read questions online and provide answers, which businesses use to design new products or learn about their client base. However, the pay is low for surveys,
often less than minimum wage, according to finance blog NerdWallet.
Frequently Asked Questions
What is the first thing I should do in a financial crisis?
Take stock of your situation right away. Figure out how much money you have coming in, what bills are due, and which ones you can pause, negotiate, or reduce. Then take care of your basic needs first: food, housing, and health.
How do I get emergency financial help fast?
Look into unemployment benefits, mortgage or student loan forbearance, and hospital financial assistance programs first, since these don't need to be repaid the way a loan does. If you still need cash quickly, a personal or emergency loan can help you cover short-term costs.
Should I take out a loan during a financial crisis?
A loan can help you cover urgent expenses. Still, it's worth exploring free or low-cost assistance first, like forbearance or hardship programs. If you do borrow, compare interest rates and only borrow what you need.
How long does it take to recover from a financial crisis?
Recovery time depends on the size of the setback and how quickly your income stabilizes. Most people start to see real progress within a few months of cutting expenses, increasing income, and sticking to a plan.
What should I avoid doing during a financial crisis?
Avoid ignoring your bills, taking on high-interest debt without comparing options, and making big financial decisions out of panic. Also avoid anyone who contacts you first with a "too good to be true" offer.
Get Out of Your Financial Crisis Through Baby Steps
Day by day, step by step, you'll likely be able to get back on solid financial footing by implementing the right strategies. The first 48 hours after a money meltdown are crucial to getting on the right path.
To recover, make sure you’re taking care of your own needs, be honest in your assessment of the situation, and look into "side hustle" opportunities that pay dependably and quickly.