The formal definition of financial hardship is a state of inability rather than unwillingness to pay bills and may be of limited or long duration. However, you don’t need a textbook definition to know you are experiencing a financial squeeze.
Cost increases in food, gasoline, and utilities and the combination of stagnant wages or unemployment, might have you feeling like there is no light at the end of the tunnel. With some aggressive planning and negotiating with creditors you might be able to ride it out.
Here are some pointers:
Be familiar with your financial situation.
Have a working knowledge of the specific amount of total income coming into the home and a concise listing of your living expenses.
Reduce variable living expenses.
Certain areas of your budget are not as important as others. Areas such as entertainment, eating out, hair/nail salons, and cable could be reduced so that money could be put towards high priority items.
Determine who to pay first.
Make sure basic needs such as food, rent/mortgage, and utilities are met. Child support payments are also a top priority. If your income should drop quite a lot, try contacting the court to change the amount of child support.
Negotiate with your creditors.
High interest credit cards absorb more of your working budget. If you are unable to make these payments, contact the creditors and request a hardship program. Under a hardship program, creditors will reduce your interest rate and your monthly payment to reflect you current financial situation. Sometimes creditors will even reduce your interest rate for the life of the loan.
Refinance for a longer time.
It might help lower your monthly payment but you make payments for a longer time. Typically, if you cannot get 1or 2 percentage points lower on secured items and 3 percent or greater reduction (from) finance companies, it might not be best to do it.
Transfer credit card balances.
If your creditors are current and no arrangements can be worked out between you and your debt, it might be best to transfer it to a lower interest bearing account. Keep in mind, you are trying to pay off debt not acquire more debt.
Don’t take on new debt.
Delay any large expense items until you are on better grounding. Be willing to forego the extra amenities for awhile.
Don’t escape.
Don’t waste money. Do not use spending as an escape from your finances. Simply put, do not pretend that you are not affected by a recession – you are.
Start a rainy day funding.
These funds can keep you from being one paycheck away from being broke. Try to sock away at least 10 percent into an account. It may not take care of the full amount of the situation but you will appreciate it.
