Life is full of unknowns. Financial hardship can be one of those things that can come from out of nowhere.
Because of that, we should always be prepared to face them when they come. Although we should, it can be hard to do so at certain points of our life. When life throws us a financial hardship curveball and we are not ready to catch it, the term for this is financial hardship.
What is a Financial Hardship?
An easy way to understand financial hardship is the following. If you have a myriad of bills to pay and you are obligated, for lack of funds, to decide which of those bills you can afford to pay monthly, this dilemma is what has been coined, financial hardship. Essentially, it is lacking the funds to pay for obligatory expenses and faces debt as a repercussion. Sometimes not being able to pay for unexpected expenses when they come can be a form of financial hardship as well.
However, whether you are facing financial hardship or hoping to prevent it, you may be asking yourself some of the common manifestations of this situation.
Student Loan Financial Hardship:
Right off the bat, it might be best to call out the biggest culprit for causing financial hardship: student loans. Specifically, when you are burdened with having to pay for student loans before it is economically feasible for you. Maybe you just got out of medical school and you are struggling to find a job in your area, meaning money isn’t readily entering your bank account. So you are faced with paying your student loans before you can afford to do so. In this specific instance and many others, this situation is the cause of financial hardship for you.
Other Financial Hardship:
Student loans are not the only forms of financial hardship. Things you cannot directly control like job loss, struggling to find employment, medical emergencies, disabilities, accidents, or negative changes in income can lead to financial hardship. Even those transitioning from financial assistance programs or those paying their debts can experience this due to the potentially big change in their financial situation.
What Can You Do When You Experience Financial Hardship?
Things may seem bleak – but this is truly not the case. There are plenty of options that exist to help you out of your financial hardship.
1. Reducing Expenses
One thing you can start doing immediately, whether you are in financial hardship or trying to avoid it, is to reduce your monthly expenses. The benefit is that it can help prevent your financial hardship from worsening.
The game plan is to first get a firm idea of how much you are spending in all departments and from there discover ways you can reduce your spending to save money. You might think what you could save would be negligible – on the contrary, any amount of money that you can put towards savings and paying your debt is a step in the right direction.
There are three areas that are a good place to start.
The first is by reducing your fixed expenses. This can include costs related to housing, energy, and utility. Things as simple as evaluating your rent price compared to those in your area to see if you might be paying twice as much as someone in your own neighborhood. Or even considering the many alternatives to cable in order to save.
Additionally, reduce your variable costs, especially those related to grocery, transportation, and entertainment. Finally, decreasing your debt expenses can make a huge difference in your situation of financial hardship. There are a variety of methods to help you do so. For example, the Avalanche Method encourages debtors, after having made their minimum payments, to begin paying off their debts with the highest interest rates first and work from there, to help save more in the end.
2. Applying to Financial Hardship Assistance Programs
Sometimes trying on your own might not be the best option for you. Sometimes a temporary helping hand is exactly what you need.
This is exactly what financial hardship programs exist to do. More specifically, they serve as a way to help you manage your bills. For example, in the common case of student loans, you may request a 12-month deferral program to help you get in a better place to pay your debts.
In addition, in some cases, the IRS will grant you access to using elective retirement programs such as taking from your 401(k), depending on your reason. The only advisory concern from taking from your retirement funds is that it is of course removed from the money to be saved for retirement.
You can also try to write a financial hardship letter to those to who you owe an outstanding debt to.
3. Consider Debt Relief Options
Debt relief is a common way to receive assistance when the financial hardship persists and you need to take a significant step. We built a calculator to help you estimate plan payments and the pros and cons of each of the different options you have.
It is always best to evaluate your options. If your financial hardship and the resulting debt seem to be creating a permanent situation for you, looking into debt relief options could be just the right thing for you. As debt is the direct cause of financial hardship, there are many solutions created for getting rid of debt specifically.
Options such as debt settlement, which is a service that helps you negotiate with creditors to settle for paying less. Although not for everyone, even looking into bankruptcy might be a good place to start. The benefit to considering bankruptcy is that you do not have to guide yourself when considering this option. There are calculators for both Chapter 7 and 13 bankruptcy that will evaluate your financial circumstances and determine whether bankruptcy is right for you. It can be extremely beneficial to lead you in the right direction concerning which debt relief option is best for you.
If you have found yourself in a situation like this, you are not alone. In fact, in a study done by Bankrate, only about 40% of Americans have savings that they could rely on in an emergency – leaving the other 60% in constant grave danger of facing financial hardship as well.
Whether life has thrown you an unexpected curveball or you are trying to prepare yourself to be ready to catch it, financial hardship does not have to be a permanent problem. Through trying to reduce your expenses, applying to financial hardship assistance programs, and considering debt-relief options, you will hopefully be able to swing back on track.