Sometimes life gets in the way and a financial emergency arises when the car breaks down, someone is hospitalized without insurance or a person loses her job. When a monetary crisis occurs it doesn’t help to panic. Instead, one should make a detailed on plan on how to manage the debt.
Understand the Cause of the Financial Emergency
Take a deep breath and try to get an understanding of the situation. In order to fix the financial issue, a person needs to understand the root of the problem. Did the person get fired? Did her house get severely damaged from a fire? Why does the financial emergency exist in the first place? When a person can pinpoint the answer to this question, he can move forward in coming up with a solution on how to manage the debt.
Cut Back on Expenses
When a person finds herself in the middle of a monetary crisis, she must start cutting back on unnecessary spending. For example, if she treated herself to coffee at Starbucks every morning before work, she should stop spending that four dollars each day and make coffee at home. If a person can afford luxuries, then she should enjoy them. However, if someone’s financial situation changes, she may have to cut back on the non-essential purchases.
A person experiencing a financial emergency should spend an hour reviewing his finances, bills and monthly bank statements to figure out the areas that can be cut. Anything that isn’t essential at the time should be cut until the person’s finances have returned to normal.
Contact Lenders and Credit Card Companies
Anyone who has credit card bills piling up, unpaid medical bills arriving regularly or stacks of unopened student loans, should call his or her lenders immediately. Many lenders are willing to negotiate and work with people who make an effort to pay their debts. Don’t leave the statements unopened in the bill drawer. It will only make matters worse. Instead, take charge of the situation. Even if a person can only pay the minimum payment, it’s better than paying late fees and receiving additional charges.
Locate Additional Money and Assistance
If a person has a savings account or emergency fund, it’s the first place she should turn in a financial crisis. This is what a savings account is for and should be used accordingly. If the person doesn’t have a savings account, she should look into other opportunities to make extra money such as a part time job or asking for assistance from friends or loved ones.
Some people decide to get credit cards or loans to deal with financial emergencies, but this could end up backfiring. If the person can’t pay the credit card balance or loan back in a reasonable amount of time, he may find himself in a bigger monetary crisis.
A person in a financial emergency should take advantage of all assistance programs available to her. If she qualifies for unemployment due to a job loss, she should allow the program to help her. Assistance with food and health care is also provided in many areas for families in financial hardship. Many times people don’t realize that they assisted many of these programs while working, so they should utilize the programs when they need them.
Plan Ahead by Setting Up Emergency Fund
When someone experiences a financial emergency, he should realize that he needs to plan ahead by setting up an emergency fund. This can be done by putting away money from every paycheck into an emergency fund. To do this, a person should figure out how much money is coming in each month and how much money is going out each month to pay the bills including food expenses. Then the person should determine what percent of the leftover money he can put into the fund.
For example, if he finds that after the necessary bills, he has $300 a month, he could put $100 into the emergency fund and use the other $200 on clothing, eating out, cable and non-essential purchases. The goal should be to get six months of living expenses into an emergency fund and replenish the money if needed. If a man’s expenses are 2000 dollars a month, he’ll want to eventually have $12,000 in his emergency fund.
When a financial emergency arises, try to understand the cause, cut back on expenses, contact lenders to manage debt, find extra money and assistance, and plan ahead for the next monetary crisis.
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