Deal With Financial Emergencies

Written by imoney

Ever been blindsided by a sudden expense that wiped out all your savings and left you in a financial hole? It happens to all of us. Since emergencies like a sudden medical operation, or your car breaking down, or an unexpected job loss are hard to foresee, they can take you by surprise, and if you’re not prepared, you could be overwhelmed.

Dealing with financial crises can be difficult, but there are ways you can address the situation without putting yourself through too much hardship. See how you can avoid being buried in debt when you try to deal with financial emergencies in six simple steps:

1. Don’t panic. Step back and calmly evaluate the situation. You’re not going to help yourself if you make rash decisions driven by panic. Write down the expenses involved in the situation, consider the options you have, talk it over with someone you trust and whose advice you rely on, and see what the best next steps are.

2. Use your emergency fund. Hopefully, you’ve read our article on how to start your emergency fund. Now would be the time to dip into it. Ideally, you have enough in there for at least three months of expenses, so you can use it for your emergency.

3. Adjust your budget and priorities. If your emergency fund isn’t enough, or you don’t have one at all, it’s time to prioritize your financial obligations. Your emergency might be bad enough that you’ll have to skip paying some of your bills this month. So prioritize your bills in order of importance, from those you absolutely have to pay (like electricity) to those you’ll have to skip (like cable) so you can pay for the emergency. You’ll also have to look at your budget and cut out all the non-essential expenses to stretch your money out.

4. Talk to your lenders. In times of financial hardship, you should contact the lenders you have obligations to and see if you can work out a different payment plan so you can cover your emergency. They’ll be much more willing to work with you if you approach them early on than if you wait until you’re way behind on payments.

5. Ask for help. You can also ask family and friends for financial help. This isn’t easy, but in times of emergency, it might be necessary. They may be willing to make you a loan at little or no interest, or give you the money outright. Borrowing or asking for money from family members may affect your relationship with each other, so be careful when broaching the subject, and make sure you return the favor when you’re out of the emergency.

6. Take on debt. Use this option very carefully, and as a last resort. If your emergency funds aren’t enough to cover your emergency, and you can’t borrow from friends or family, you might need to use other financial tools. Consider taking out a personal loan or using your credit card to deal with your financial emergency — but only after making a plan for paying off the new debt you’re taking on, so you’re not overwhelmed later.

Knowing the steps you can take when faced with a sudden financial emergency can help you make better decisions, so you can get out of the hole faster. So make hay while the sun is shining: beef up your emergency fund, see what resources you can make use of in case the unexpected hits, and start prioritizing your spending so you know what you can do without if the worst does happen. And when you do make it through a financial rough patch, you can be better prepared for the next one.