What to do when you have a financial emergency

Financial emergencies can happen when we least expect them. While it's always ideal to be prepared, life doesn't always go as planned — a sudden loss of income, unexpected medical bills or another major expense can catch anyone off guard. If you find yourself in this situation, you're not alone. Here are some steps you can take to navigate financial hardship and regain stability.

How to manage your money during a financial emergency

When you're facing a sudden financial hardship, it's important to take deliberate steps to stay in control of your situation. While it may feel overwhelming, breaking things down into smaller, manageable actions can help you stay focused and make informed decisions about your next moves. The key is to understand your situation clearly and create a plan that helps you prioritize your needs.

1. Take a step back and assess your financial situation

Although it might seem easier said than done, try not to panic. A good first step is to lay everything out and take an objective look at your personal finances. Make a summary of all the basics, like your income, savings accounts, retirement accounts, and ongoing expenses or debts such as credit cards or student loans. Once you have these clearly organized, you can start working toward developing a plan.

2. Create or reassess your budget

Setting up a budget or reexamining your existing plan will help you understand what's flowing in and out. From there, you'll be better able to prioritize your expenses and can start looking at ways to cut costs. Think about what's really essential, what needs to be paid right away and what can be canceled or reduced.

3. Find ways to cut costs

What are some things that you can do without? Are there services or subscriptions you can cancel? Once you determine which expenses can be eliminated, go back and adjust your budget. Break down larger categories, like food, and find specific ways to lower your costs or substitute for less expensive options.

4. Contact creditors and service providers

Many businesses, including banks, credit card companies and student lenders, are willing to work with you to develop alternative payment plans during a financial emergency. The key is to contact these companies as soon as possible. Don't wait for them to reach out to you. Before you call, take time to review your debt obligations and understand what you can realistically afford to pay each month.

5. Carefully consider borrowing and repayment options

If you're finding it difficult to manage your bills, review your existing debts and explore the following strategies that may make repayment more manageable.

• Refinancing or consolidating loans: This can simplify payments and may help lower interest rates. While it doesn't always guarantee savings, refinancing or consolidation can help reduce financial stress and create a clearer path toward your goals, so it's worth discussing the best options with your lender. It's also worth exploring with your lender whether you can use your home equity to secure a loan or credit line.
• Other borrowing options: Some employers provide paycheck advances, emergency loans or other financial assistance programs through their benefits portals. These short-term solutions often rely on employment and income data instead of credit history and may come with lower interest rates.
• Borrowing from retirement accounts: Be cautious about tapping into retirement accounts such as a 401(k) or IRA. Withdrawing funds can have long-term financial consequences, including taxes and penalties. Before taking this step, consult a financial advisor to fully understand the potential impact on your future savings.

How to get help during a financial emergency

It's not easy to ask for help, but the right resources and strategies can help you stay afloat while you work toward getting back on track during a financial emergency.

Investigate assistance programs

State and local government programs are available to provide support during financial hardship. Each state has different options and eligibility requirements, so check with your local labor or social services department to see what is available. It's also worth looking into what other independent agencies or non-profits are available in your local area.

Talk to family and friends

Asking family or friends for help could be a viable alternative to taking on high-interest debt or other borrowing arrangements that might hurt you in the long term. The people closest to you may be in a position to help you make ends meet — and they'd likely rather support you than see you struggle.

Always take care of your personal relationships and set yourself up for success when borrowing money from a friend or family member. You can help the conversation go more smoothly by being prepared with a detailed repayment plan and offering a reasonable interest rate. Be sure to put everything in writing so everyone understands what's expected.

We're here to help

At Citizens, we're committed to helping you navigate a financial emergency. Our colleagues are ready and available to help you explore solutions tailored to your situation and find resources to help you get back on track.