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7 Financial Emergencies In Life That You Need To Know How To Deal With

7 Financial Emergencies In Life That You Need To Know How To Deal With

You may be surprised by some of the categories included, but when it comes to finances and emergencies the biggest thing between the two is the unplanned. When you make goals, you should include contingency plans and always maintain an emergency fund. When life’s twists and turns arrive, you will be better able to enjoy the ride rather than fear the consequences.

Job Loss – the financial emergency we often encounter first

From our first fast food working days to the jobs we plan to continue throughout our careers, job loss is one of the most prevalent emergencies–and losing a job is an emergency everyone should plan for and plan accordingly. Even a 16-year-old working his or her first job should plan to become unemployed. The reasons people lose jobs vary widely, but a simple plan involves saving at least one month’s pay. Depending on the responsibilities the individual has at the time, saving more money may be necessary. It all comes down to planning to cover the most immediate needs because even when working your first job, you need to prepare to pay your bills if you lose the job.

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Marriage – emergencies occur when combining debt

Believe it or not, marriage can be a financial emergency–especially if you marry into debt. You shouldn’t marry for money, but when you and your fiance (or fiancee) acted irresponsibly with money before you decided to partner for life, you need to plan for impending emergency. The best defense against marrying into debt is not to separate. Instead, make a plan to pay down individual debt and create goals for the short and long term. These goals can include things like paying off credit debt or building credit scores in order to get pre-approved for a house.

Divorce – separation costs more than partnering

The last thing lovers want to think about when marrying is divorce, but this financial emergency is a startling reality for many couples. The best way to plan without hurting your partner’s feelings or giving strength to pessimistic thinking, is to take steps to maintain the relationship. In addition to “planning” for divorce, just planning in general for financial emergency will protect you against this one.

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Natural disaster – financial emergencies ahead

How common are tornadoes, earthquakes or floods in your area? When you buy a house or even rent an apartment, keep the possibility of natural disaster in mind and buy homeowner’s insurance or renter’s insurance. Watching the weather and planning for escape never hurts if you live in an area that suffers disasters often, but in addition to an underground shelter, you can shelter your finances by insuring them.

Bankruptcy –  avoid the biggest financial emergency

Bankruptcy is the cold, hard truth for many who take calculated business risks as well as those who simply enjoy their youth too much. When establishing credit, use the limits as a gauge instead of a hard line. If your credit card allows you to charge up to $5,000, you should keep a balance of about $2,000 at most. How much debt you carry is a calculation lenders consider, and many suggest your debt-to-credit limit percentage should be 30 percent or less. In “planning” for the financial emergency of bankruptcy, remember you cannot write off student loan debt. Keep that in mind if you spend your refunds at the bar.

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Retirement – will you have enough?

Most people who join the workforce intend to retire so they can actually enjoy the money they earned working hard at a career for so many years. The sad fact is that for many entering the workforce in 2014 and the years to come, social security may not exist when retirement arrives. If you fit into a category in which you cannot count on retirement or a pension, make sure to consult a financial adviser and create a plan to investing that can help protect your plan to retire. People live longer now than they did in the past, so long-term-care insurance may be a wise investment to protect what savings you accumulate while working.

Death of a spouse – planning for the hard times

Topping the list of things no one wants to think about is losing one of the closest people to you in your entire life. Apart from a parent, who you expect to lose before you die, and a child, who you never hope to lose before you die, a spouse’s death is purely catastrophic. Not only do you suffer emotionally but also financially. You can plan for death in a similar fashion to planning for divorce, by saving money in an emergency or trust fund. You can also take out life insurance to protect against the financial devastation that comes if your spouse’s income provided the majority of household income on which you need to live.

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In all cases of financial emergency, looking into the future and recognizing the potential for disaster is possible. Insuring, saving, and most importantly, planning are your best calls to action in recovering from any financial emergency–now that you know what the big ones are.

Featured photo credit: morguefile via mrg.bz

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Ellen Eldridge

Ellen is a passionate journalist. She shares her everyday life tips at Lifehack.

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

More Tips on Getting out of Debt

Featured photo credit: Pepi Stojanovski via unsplash.com

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