It’s never fun when life throws you a sudden, unexpected financial curveball. And unfortunately, these challenges always seem to pop up when you least expect them. Ideally, the hurdle isn’t too tall, and you can cover the costs with your emergency fund. But these challenges are often more severe – and usually no fault of your own. Instances might include unplanned medical expenses, a sudden job loss, or a significant home repair.
The good news is there are solutions available to help you get back on financial track. But they will require you to be proactive and address the challenges head-on. The following steps provide a roadmap for dealing with significant financial obstacles.
Step #1: Ask Lenders for Help
Whether it’s a car payment, mortgage, or credit card bill, loan payments are usually members’ largest monthly expenses. So, you’ll want to start by reviewing all your outstanding loans. Write down all your due dates and payment amounts. Then begin contacting your lenders.
You’ll want to ensure you contact lenders before your loan due dates. This will generally give your lenders more flexibility on what solutions they can provide and might help prevent damage to your credit score.
Some common solutions might include the following:
- The ability to skip one or two loan payments now and have them added to the end of your loan.
- The option to restructure your loan, which could include reducing interest rates, extending loan terms, changing the loan type, or allowing you to put additional collateral toward the loan.
- The option to make interest-only payments for a select number of months.
Some people are reluctant to ask for help. They find it embarrassing if they are struggling to make their loan payments or pay their bills. Rest assured that lenders understand the impact of unexpected financial challenges and are there to help you.
Waiting to ask for help will likely worsen the situation and leave your lenders with fewer relief options. Be proactive and ask for help as soon as possible.
Step #2: Review Your Current Bills
The next step is to review your recurring monthly bills. You’ll want to start with your most important expenses, such as your utilities (electric, gas, water, trash, etc.). Contact each vendor and ask if there are possible payment plans available to help you temporarily. Again, most businesses that provide needs, such as utilities, are ready to assist you.
Then, look at your other monthly expenses. Most companies today understand rising prices and financial setbacks are challenging for customers. As a result, they are open to helping you find lower-cost plans or possibly delaying a payment or two in certain circumstances.
But again, always make sure you reach out to vendors before your due dates. Being proactive demonstrates that you’re aware of your financial position and are actively seeking solutions.
Step #3: Reevaluate Your Budget
After you contact your lenders and vendors, it’s time to revisit your monthly budget. It’s recommended you create a spreadsheet so that you can see several months in the future. This will allow you to understand better how any temporary loan and vendor solutions will impact your financial situation. You’ll also be able to factor in any possible windfalls that will help, such as tax refunds or work bonuses.
If your budget is still bleak, despite relief options, consider the following moves:
- Trim More Expenses: Keep looking for areas in your budget that you can trim. Remember, these cuts don’t have to be permanent.
- Reduce Investments: If you have money withdrawn from your paychecks and deposited into your retirement accounts, you might consider temporarily reducing this amount.
- Consolidate Debt: If you have several high-interest credit cards or short-term loans, consolidating them into a lower-rate loan can help reduce your monthly interest payments.
- Refinance Loans: If your credit score has increased since you initially opened a loan, such as your car loan, you might qualify for better interest rates. Refinancing can help lower your monthly payments and reduce how much you pay in interest.
Step #4: Remain Proactive
Throughout the process of dealing with financial challenges, you’ll want to remain proactive. Contacting your lenders and vendors before your due dates shows you’re actively seeking help. Mapping out a new budget and finding ways to trim your monthly expenses allows you to stay on top of all financial matters.
Next, you’ll want to continue to monitor your progress. To ensure this challenge doesn’t hurt you down the road, you’ll want to keep an eye on your credit report and score. You might want to sign up for credit monitoring to stay on top of any credit changes. Many businesses, such as Experian and Credit Karma, offer free credit monitoring options (with the opportunity to upgrade to paid versions).
Lastly, even though lenders might have reduced or delayed your loan payments, that doesn’t mean you can’t pay extra. If you’re getting back on your feet quicker than anticipated, paying extra on modified loans demonstrates to the lender that you’re serious about resolving the issue, and they will be more likely to help in the future.
We’re Here to Help!
Most people will face a significant, often unexpected, financial setback in their lifetime. As your financial partner, we’re here to remind you that you don’t have to deal with this challenge alone.
Our team is here to assist you with your upcoming loan payments and help you discover other solutions, such as consolidating debt or refinancing loans.