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Don’t panic if you have a financial crisis

Many people will experience a financial setback or difficulty that they must deal with during their lifetime. Remaining calm and understanding your situation are two crucial steps in resolving most any financial crisis. It is important that you solve the real problem, not just treat the symptoms.
What are common reasons people experience a financial crisis?
Many times people who end up with financial problems it is because an unforeseen event or chain of events have occurred. It could be unexpected medical expenses, a reduction or complete loss of income, or extensive car repairs. For other people, it could be their own or their spouses inability to live within their means.
Are there signs that you might be heading towards a financial crisis?
Common first level signs are the inability to pay more than the minimum on credit cards, deferring maintenance on your house or car, routinely paying bills and loans late and having absolutely no emergency fund. Second level signs are calls from financial institutions regarding late payments, using credit for everyday expenses and the threat of discontinuation of services.
How do people make their situation worse?
Often, people just want to ignore the situation and hope that it will get better on its own. This is often times a critical mistake. Waiting to deal with financial situations might preclude you from some of the available options to solve your problems. For example, if you let your credit score slide, you might not be able to get a consolidation loan that would help reduce your credit card payments.
Why is remaining calm so important during a financial crisis?
It is very easy to overreact and make decisions that lead to further financial complications rather than fixing the initial problem.  For example, if you can’t pay your auto loan, don’t just turn in the keys. You are liable for the entire loan balance, meaning you could end up with no car and still a debt to pay.
What is the first step in resolving a financial problem?
It is really understanding the true problem and not looking just at the immediate financial issue. If you are over-extended on credit card debt and can’t make the payments, your issue isn’t the amount of debt. The issue is that you probably live beyond your means. Fixing this problem will eventually take care of having too much credit card debt.
Once the problem is defined, what should be the next steps?
Search for professionals and other resources that can help you solve your financial problem and guide you towards a plan for improvement.  This can be a financial coach/counselor, a friend, someone from your church or even someone from your financial institution. You might even need a combination of these individuals.  Once have your help, you can develop a plan to resolve your situation.
Is there a fourth step in resolving a financial setback?
Yes, it’s working your plan and making adjustments as needed to resolve your financial problems. Part of the fourth step is also correcting any behaviors that contributed to the initial problem. Without this commitment to change, your financial situation likely will not completely recover.  Additionally, it is important to be more vigilante in regards to first level warning signs.

Posted: 8/25/2017 with 0 comments

Categories: Advisors, Money Matters, Planning

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