It seems like an ordinary day. You wake up on time, get cleaned up and make yourself a cup of coffee before work. You’re out the door and it’s Monday morning as usual. But when you get into your car, it won’t start. You turn it over again and again to no avail. Turns out it’s a busted alternator. That’s $1,000 you don’t have. So, what’s the next step? Everyone will find themselves in a financial emergency at some point in their life — unexpected rises in rent, job loss, car repairs or medical emergencies. According to a 2017 survey, more than 50 percent of Americans have less than $1,000 in their savings accounts. So how do you bounce back from a financial setback? Here are five healthy ways to recover.
1. Tap Into Your Savings
Preparation is important. Ideally, those affected by a financial emergency would have an emergency savings account to tap into. Traditional savings accounts don’t penalize you for taking out funds and you won’t have to pay any of the money back since it’s yours in the first place. If you don’t have a savings built up, you could take money from your 401k. The downside is that an early 401k withdrawal warrants penalties. And, by taking funds from your retirement savings, you’re losing assets that could be used later in life.
2. Reach Out to Friends and Family
If you don’t have money saved, it doesn’t hurt to reach out to friends or family. Borrowing from a family member is beneficial in that you won’t have to pay interest and you personally know your “lender.” Don’t be ashamed to ask, either. Your loved ones have likely been in a similar situation and understand what you’re going through. Dealing with friends or family could lead to more open conversations about money, too, as a person may be more forthcoming with a relative than someone at the bank. If friends and family aren’t in a position to help financially, they might be able to direct you to financial counseling services or offer up other solutions.
Eliminate Unnecessary Expenses
Everyone likes starting their day with a Starbucks coffee. But eliminating a Frappuccino before work, along with cutting other unnecessary expenses, can help in times of financial distress. In fact, it might be a necessary measure. Revisit your budget and decide which expenses can be eliminated. Of course, you’ll need to account for groceries, utility bills and living expenses. But you likely could cut down on eating out, for example. A lifestyle change like this will not only help you pay back an emergency expense — it will also help you become better prepared for future financial crises.
Pick Up a Side Job
Pick up another job if you’re in a position to do so. This probably doesn’t sound like the most glamorous option, but a second job adds constant cash flow to your budget and can help you pay back emergency expenses quicker. And, more work doesn’t mean it has to be a traditional 9-5. The gig economy allows workers to use their skills on a flexible schedule. Check out some of these side gigs.
Create a Plan You Can Share with Creditors
Creditors want to know how you plan to pay them back. And they’re going to be more likely to adjust payment terms if you propose a payment plan that outlines your strategy. Say you need to pay back $400 in a month. How would you do that? If you can create a detailed plan on paper, creditors are more likely to make exceptions for you. Ultimately, a lot of your success will rely on your ability to be upfront and honest with people. Don’t tell them you can pay off your debt if it’s not true. But don’t be afraid to explain your situation and how you propose making the necessary payments.
Unplanned expenses are inevitable, and, unfortunately, most Americans aren’t prepared for them. The five tips we’ve listed here are ideal because they’re safe, and they don’t expose consumers to predatory lending. Payday loan shops now outnumber McDonald’s restaurants in the United States. These unhealthy alternatives charge consumers exorbitant interest rates and create a cycle of debt that can become seemingly insurmountable.