How to Handle a Financial Emergency

One of the realities of life is that sometimes unexpected financial emergencies can strike. Indeed, you never know when a natural disaster, job loss or some other catastrophe will strike. When you do run into financial difficulties, the way you react can make a big impact on how you resolve the situation, and whether or not the result is financial ruin.


If you are faced with a financial emergency, here are a few things to keep in mind as you prepare to handle the situation:

Step Back and Consider the Situation

It can be difficult to stop and consider your situation. However, before you make a decision, you need to know where you are at. First of all, look at the situation.

  • What costs are you going to incur?
  • What is your emergency fund like?
  • Do you have a measure of income diversity to help offset your increased costs and/or loss of income?
  • What other assets do you have?
  • Do you have items you can sell?
  • Do you have home food storage to help you reduce your immediate grocery bill?

Your first impulse might be to make a fast move, pulling all of your money out of your emergency fund, or immediately trying to stop all of your spending. You might be better served, though, by stepping back and considering the problem. Determine whether or not you might be able to set up a payment plan, and figure out what sources of income and financial help you might have available to you. You might not want to ask friends and family for help, but it might be necessary in some cases.

Understand your position, and recognize the assets you have access to, as well as the possibilities you have of making the situation more manageable.

Prioritize Your Bills

In some cases, not all the planning in the world allows you to pay all of your bills when they come due. As a result, it is vital that you prioritize your bills. Figure out what your most important priorities are. if you want to remain in your home, then your top priority is making sure the mortgage is paid. If you need to keep your car, you need to ensure that you have enough money to make the loan payments. Utilities, groceries and other necessities should be ranked as well, although you can usually find assistance programs to help you with utilities, and you can find community pantries and food banks to help you with food, if you decide that’s necessary.

Realize that some bills just aren’t as important as others. Your credit card issuers might be calling and asking for payment, but if you are more concerned about keeping your house, paying the unsecured credit cards just isn’t going to be practical. You do have rights, and you can get creditors to stop calling you about payments you just can’t make, due to financial emergency. The important thing is to prioritize your bills so that the most important items are covered.

Contact Your Creditors

As soon as you know you are in trouble, contact your creditors. See if you can work out a new payment plan. You might be able to work something out with your creditors, in terms of a new plan, forbearance, deferral or modification. Realize, though, that in some situations interest will still accrue on your debts, even if you aren’t making payments right now.

Contacting your creditors can help you salvage some of your credit rating, as well as reduce the number of phone calls and payment due notices you receive. Be realistic about your ability to repay the loan right now, and work with your creditors on a payment plan. Many creditors are willing to work with those who show an interest in repaying their debts, instead of just turning to bankruptcy as a way out.

Look for Other Ways to Earn Money

One of the best ways to shore up your finances during an emergency is to have income diversity. As soon as your emergency hits, look for ways that you can earn more money. Consider side hustles, home business ideas and part-time work. You will likely need more income, from different sources, if you are going to weather the emergency.

Photo by BLW Photography via Flickr


By , on Aug 8, 2013
Miranda Marquit Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.


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