Many people will suffer a financial setback at some point in their lives. Whether you experience a job loss, divorce, or out of control credit card debt. Recovering from such an event can seem overwhelming.
If you experience financial loss during midlife or beyond, it can be particularly daunting. It can really take a hit to your financial and mental well being. You may face having to put that retirement on hold for a little longer and make some sacrifices that you didn’t think you would have to make at this stage of life.
Whatever led to your financial situation, you are not alone. Many have gone before you and have gained control of their financial plan. The key is to have a financial plan, whether you do it on your own, or reach out to a personal financial planner, it needs to be done.
One thing that is very important is that you address your personal financial situation sooner than later. Believe in yourself! You have a lot of skills and passion that got you where you once were and you will be able to get back to where you want to be with a plan and taking action.
Following are some things to consider when putting together your plan to get your financial life to where you want it to be.
1. Face Reality
After learning about a major financial setback in your life, it can be tempting to bury your head in the sand and resist accepting reality. But doing so may make your situation even worse the longer you ignore the situation.
The first thing to do recover from a financial setback is to get a full picture of your financial situation.
What do you own, your assets? Write down what you owe, or your liabilities. What is ALL the predictable income you bring in each month? Look at your bank statements and credit card statements to determine what your average spending is. Don’t forget those large ticket items that appear once or twice a year.
2. Consider the Resources you Have
Consider who you know and how they could help you recover from a financial setback.
Tap into your network of partners and business relationships. Are they doing something you could tap into? Do they know of employment opportunities that would pay more then you’re currently making?
If you own assets such as real estate or a car, you may have to sell them and use the money to invest in education or starting a new business, or side hustle.
Look in your closet and garage, you may find items that you can sell online.
3. Cut Back on Spending
In order to recover from a financial setback, you will need to address your spending habits until you have recovered. It’s wise to cut back on spending on non-essential items to avoid falling into greater debt.
Following good budgeting practices is crucial when you have faced a sudden loss of income. To do this, you will need to determine what your essential and non-essential expenses are.
Essential expenses are items you cannot live without, such as food, utilities, and rent/mortgage.
Non-essential expenses include items that make life more comfortable but aren’t necessary to survive. These include eating at restaurants, travelling for vacations, or purchasing gifts.
Stop using your credit cards to purchase items.
Cancelling your credit card may negatively impact your credit score. So it may be better to leave the account open.
4. Pay off Debt Quickly
If your financial crisis has left you in a large amount of debt, you should try and pay it off as quickly as possible to avoid interest. Debt with a high-interest rate can quickly spiral out of control and become much more difficult to tackle later in the future. Letting debt accumulate on those cards will make it much more challenging to recover from a financial setback.
Paying off debt quickly may not be an option if you do not have a steady source of income. In this situation, you may need to look toward debt relief options such as a consolidation loan or debt settlement.
Reach out to your creditors and explain your situation. Be sure to keep notes of dates, numbers and who you speak to.
There may be some programs for hardship situations. For example, credit cards may discount interest rates for a certain period of time.
If you have a car lease, find out what it would cost you to break it. Always ask how this will affect your credit score. You want to protect that the best you can.
Oftentimes, medical bills can be negotiated with hospitals, clinics and doctor offices. You don’t want to just ignore these and have them go to a debt collector agency and wreck your credit score.
You can get rid of multiple high-interest debts by taking out a consolidation loan. This is a low-interest long-term loan that can be used to pay off multiple high-interest debts. After doing this, you will still have a debt to pay off, but the terms of the new loan make it easier to manage than your previous debts.
This option may not be for everyone, as you will need a good credit score to be approved for a consolidation loan. If your credit score is poor due to financial setbacks in the past, you should opt for debt settlement.
Debt settlement is usually a last resort option next to declaring bankruptcy, but it may help you pay off your debt.
With this option, you will need to stop making payments to your creditors for several months. Over time your creditors will become concerned about your ability to pay off your debt and contact you. You can then make a settlement offer where you agree to pay an amount smaller than your actual debt.
This option is risky, as your creditors may take legal action when you stop making payments to them. In addition to this, debt settlement will severely damage your credit rating. This damage will be visible for up to seven years, during which you may have difficulty applying for loans or credit cards.
5. Find an Additional Source of Income
Some people respond to financial crises in their lives by setting up additional sources of income.
You may need to find a part-time job or a side-hustle to keep yourself afloat temporarily. What about renting out part of your home on services like AirBnb. You will need to get creative to bring in some additional income short term.
6. Be Patient with Yourself
A financial setback can catch anyone off guard. In the days following the crisis,, you may feel as though everything is falling apart and that you are no longer in control of your life. But it is important to remember that you still have many different options to help you weather through this.
Try not to linger on past mishaps that can’t be changed. Instead, view them as learning opportunities that help you grow. The path ahead can seem difficult at first, but there are always ways to overcome difficulty.
Focus on the things in life that you do have to be grateful for and know this WILL pass, you WILL get through it. Know where you want to go, set your plan, believe that you can do it, and then make it happen.
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