Tips to deal with financial emergencies

By June 9, 2016 Blog

What if a financial emergency, crisis, or sudden need requires more cash than you have available in your savings account? It could be a large medical expense not covered by your health insurance plan, a large down payment on a house, or an extended period of unemployment.

You may be tempted to simply turn to your credit cards to make up the difference. While credit cards may help temporarily bridge the gap in a financial emergency, they are not a long-term crutch. In fact, turning to credit cards can lead to a new crisis, as high-interest debt turns into a monster that can’t be paid down.

What can you do once the special savings account runs out? There may be no magic solution, but there are ways to make the problem more manageable:

  • Talk with trusted friends or relatives, with the goal of eliciting fresh ideas about how best to deal with the emergency. They may come up with an alternate approach that lowers the overall cost.
  • See if the source of the cost (hospital, bank, etc.) is willing to accept an alternate payment plan. For instance, if a large down payment is required, is there any way to reduce it? Or, if you have just been billed for a $30,000 hospital procedure not covered by insurance, will the hospital allow you to work out an installment plan to pay it off? If the answer is yes, watch for special conditions, fees, or excessive interest.
  • Immediately come up with a plan to cut your expenses. Start with the flexible expenses that are nice to have, but are not absolutely necessary. Personal Finance For Beginners In 30 Minutes, Vol. 1 explained how opting for cheaper phones, cable TV service, and cars can potentially save thousands of dollars every year.
  • Start selling stuff. Furniture, antiques, jewelry, musical instruments, and collectibles may be hard to let go of, but they can provide cash in a pinch. Try to establish the fair market value for the items and your target prices before talking with potential buyers.
  • Consider radical approaches, including rethinking your housing and transportation requirements. For instance, renting out property, downsizing living arrangements, or shifting from cars to public transportation can make a huge impact on annual spending.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 2, by Ian Lamont. All rights reserved.