Half of all Americans experience a financial emergency every year. You may be among them.
A financial emergency can range from an unexpected medical bill to an expensive car repair to a leaking roof. There isn’t a specific amount that constitutes a financial emergency either.
An unexpected expense that one person can cover easily may leave someone else financially destitute. We’ll explore five options to help you deal with a financial crisis.
1. Review Your Income And Expenses
This may seem obvious, but too many people skip this step and panic. This is not the time to make emotional decisions. Don’t underestimate the problem, but don’t overestimate it either.
Make a list of every expense you have. Include regular expenses like your rent or mortgage payment, utilities, cell phone, internet, and car payments.
Remember to include recurring expenses, even if you don’t pay them monthly. For example, you may pay your car insurance every six months. Figure out what that is per month.
Then, add up your monthly income and see what’s left over to cover at least part of that unexpected expense.
2. Reduce Expenses to Address a Financial Emergency
Look at the list you just made and see if you can cut anywhere temporarily. Can you live without cable for a month or two? Can you reduce your electric bill at all by opening a window instead of running the air conditioning?
If you’re paying a lot for car insurance, shop around for a better rate. An hour or two on the phone could cut your premium in half.
3. Negotiate Your Bills
Don’t stop with your car insurance. Get on the phone with your creditors and explain the situation. In some cases, you might be able to defer a payment or two to free up the money to cover your unexpected expense.
79 million Americans have medical expenses they can’t pay for. If a sudden medical problem has left you with a huge bill, contact the provider immediately. The provider may help you set up a payment plan that won’t bankrupt you.
4. Increase Your Income
Consider taking on a second job temporarily to bring in more money. If you have the equipment, you might earn a little extra mowing lawns. If you’re good with numbers, you could make money doing taxes or helping a startup with its business plan.
57 million Americans work freelance jobs. If you can use what you have now, you might be able to cover your financial emergency with a freelance job or two.
5. Take Out a Loan
Taking on debt to address a financial crisis isn’t ideal, but it may be your only option. If you can put that sudden expense on a credit card, you can buy yourself time to pay it off. Ask your credit card company for a lower rate, too.
If you own your home and your credit is good, you might consider a home equity loan. Talk with your bank about your options.
You can also find short-term loans to deal with the financial crisis you face. Just be careful to work with a reputable company. Check out the feedback from other customers like these Rightway Funding Yelp reviews.
Start Building an Emergency Fund
Once you’ve dealt with your current financial emergency, make a plan to build up a rainy-day fund. Save a portion of your income every month until you have enough to cover your expenses for at least three months.
Check out our blog for more articles about personal finance issues.