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Dealing with Financial Struggles without Adding on Debt

How to Handle Financial Problems without Increasing Debt

When dealing with financial pressures, one pitfall to be avoided is to not go further into debt to resolve any debt which has already built up. For example, if someone loses their job or ends up with reduced hours (as we have seen repeatedly during this COVID-19 pandemic) it can be quite convenient to turn to a credit card to help cover any shortfall in household expenses. But by doing so, they also continue to grow their debt load, complete with additional interest.

The good news? There are ways to deal with a rising debt load that does not involve taking on additional debt. Here are some steps anyone can take to get rid of existing debt without taking on additional liability:

Step 1: Identify Issues

One of the first steps to resolving this type of situation is to take the time to fully understand the issue. Here is a quick checklist to go over with yourself when you are trying to resolve any problem of this type:

  • What problem are you faced with?
  • What is your current situation?
  • How much money will you need to deal with this problem?
  • What timeframe are you looking at to resolve this problem?

The more that is understood about the issue and the situation, the better. This information will help solve the problem.

Step 2: Understand Emotions and Triggers

A celebrity once said: “I only have three triggers: People, Places and Things.” And boy, is that true! When we are dealing with a stressful financial situation, the automatic trigger is usually fear or worry. Lately, we can add COVID (health and safety) to that list. Unfortunately, emotions such as these can cloud our judgment, causing us to make rash or impulsive decisions. One terrific way to keep emotions in check is by pausing before making any big decision. Instead, take a deep breath and then jot down on paper your feelings and emotions. Put the paper away and return to it later that same day – if you are not in the right emotional state at the moment you are experiencing stress, committing to putting the problem aside and coming back to it later that day often helps.

It is also important to recognize your other triggers. A lot of people tend to spend more on “things” (clothing, travel, alcohol, and other non-essentials) when they are stressed, tired, or feeling down or depressed. Often that involves whipping out the handy credit card to pay for those purchases. If you know your spending revolves around these types of triggers it becomes easier to correct the behavior and avoid spending money on things you may regret later.

Step 3: Reduce Spending

If you are dealing with a financial problem (such as an unexpected expense, a job loss or reduced work hours, for instance) it is important to cut your spending wherever you can so the new expense will not impact your budget negatively. Review your budget and see if there are areas where you can make changes. Any expenses cut from your budget is money you will not need to borrow to cover those costs. For example, digital subscriptions to services such as Netflix, Disney+ or Spotify can cost $10 to $15 a month each.  By reducing your digital diet to only one subscription service a month you could find an extra $20 to $30 monthly to put towards debt repayment.

Step 4: Create a Realistic Plan

When you are facing financial difficulties, the best way to deal with them is to plan. Determine how much money you need to deal with your issue, then create a plan to help you meet that goal.

It is important to be realistic. For example, if your car breaks down and the mechanic throws up his hands and says, “it cannot be repaired!” you may have to decide between using public transit or the purchase of another vehicle. If you have savings set aside for a down payment on another vehicle, you could use those funds to get your new set of wheels (though I do recommend a used vehicle as you will save a substantial amount of money on it versus buying new). If you do not have any savings, you may be taking public transit for a period until you can save the funds needed to get that car.

What you do not want to do is decide your goal is to buy a car this month – that strategy will not work for you and will just leave you feeling anxious and stressed (those triggers again). Instead, create a plan that is financially responsible to calculate just how much money you need to put aside each paycheck for another vehicle, and save towards that goal while you take public transportation to and from work. Short term pain = long term gain.

Step 5: Prioritize To Avoid Impulse Buying

As we have already discussed, when you are dealing with financial decisions, it is essential you set priorities. Very few people can afford everything they want at the exact moment they want it. But we do live in a society where instant gratification is desired by many. When you are making spending decisions, you will need to remain determined to only spend your hard-earned money on the things that matter most. Try to avoid impulse purchases whenever possible. Of course, these priorities will be different for each of us. That is why priorities are essential.

And, if you are experiencing financial pressures, it becomes even more essential for you to prioritize your spending. With less money available, every dollar must be spent wisely.

Step 6: Chat With Creditors

Since you are reading this on our website, it may be fair to assume you are already experiencing financial pressure, or have a friend, family member or co-worker who is. When financial pressures arise, speaking with the creditors can sometimes be most helpful. For instance, if you lose your job or have become ill and are unable to work, letting the creditors know about this change in your situation can prove to be most helpful.

While creditors are under no obligation to assist you during a difficult period of your life, if you have a good credit history with the creditor, they may be willing to modify the terms of your loan. Some will even excuse the interest on your credit card payments for a period so it will be easier for you to get back on your feet.

Reducing the amount of interest you are paying is just one thing a creditor can offer you. They may also propose extending the timeframe of your loan, which could lower each monthly payment, making the loan more manageable for you during a time of reduced income.

When speaking with the creditors, be honest and straightforward. Before the chat, determine what you can afford to pay so you will know if your creditors are making an offer that will benefit you rather than create further stress and hardship. And, if your creditors agree to change the terms of your loan, please ensure you get the updated terms in writing from them (either email or letter would work).

If you have already tried many of our recommendations, above, and still feel you are knee deep in debt and continuing to sink, our Farber professionals can help. Our Licensed Insolvency Trustees will meet with you to discuss all the options available to you. Just CLICK ON THE FREE CONSULTATION BUTTON, below, to reach out to us today.