Handling a Money Crisis

Feb 7, 2012 by


When a household budget is suddenly and unexpectedly thrown far out of balance—maybe your family has absorbed a layoff and seen its income drop—you may suddenly face extraordinary financial challenges. Family income may no longer be close to covering living expenses. The normal, and understandable, reaction is something like panic. You don’t see how you’ll pay your bills, and you visualize losing everything you’ve worked for. It’s a very stressful time, for anyone.

Deep Breath, Then Action

Give yourself a day or two to get through any shock and paralysis. Then focus your mind and your family’s energy on persevering. It’s your turn to tap into emergency support while you work to restore your income or otherwise right your family’s ship.

  • If someone’s been laid off, apply immediately for unemployment insurance, regardless of what anyone tells you about eligibility.
  • Learn the location of the nearest food bank and use it.
  • Find out if you qualify for the Low Income Home Energy Assistance Program.
  • For any service you may need, there may be Federal help or resources in your community ready and able to help you through a crisis.
  • If you’ve made a budget with expenses separated into Necessary and Optional, now’s the time immediately to turn off or dial back all of your Optional household expenses.
  • Every able-bodied family member should look for additional work of any sort. Forget about being picky or proud; a newspaper delivery route will help. Part-time and temporary work is often easier to find than a full-time permanent job.
  • Draw cash from your Emergency Savings as a last resort.
  • If you’ve cut back on all the expenses you can and your budget’s still unbalanced, consider stopping or cutting back future contributions to workplace retirement plans to boost temporarily your take-home pay. (Just as this is one of the last things you want to do to make ends meet, it’s one of the first things you want to reverse when the crisis is over.)

Don’t be too proud to ask for help, that’s why these programs and agencies exist. When you’re on your feet again, you can give back with money or volunteer time.

Priorities

If it’s impossible to make ends meet during a crisis, you’ll have to decide which bills to pay.

  1. Food, shelter, utilities, and medical insurance: Keep your family fed, your mortgage/rent paid, your utilities paid, and your medical insurance in force.
  2. Try to stay current on any loan that’s secured by an asset you need to work, like a loan on a car you need to commute.
  3. Don’t drive an uninsured car.
  4. Necessary out-of-pocket medical expenses that you have to pay at the time of service like prescriptions and co-pays are high priority.
  5. Generally and if necessary, stop paying on unsecured debts—like credit cards—before you stop paying secured debts, like car loans and mortgages.
  6. If you must stop paying on some unsecured debts, start with the account with the largest minimum payment. The greater number of accounts you can keep current, the better, so pay those with the smallest minimum payment and work your way up until you run out of cash.

Any other suggestions for families facing a money crisis? Have you made it through a crisis, or are you still in the midst of one?

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