What to Do and Who to Trust in a Financial Emergency

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The Dangers of Financial Stress

Three Questions

Here are three simple quizzes.

Answer each one honestly and as best you can. Then check the answers, which are provided at the very end of this article.

Question 1: When is the best time to start preparing for a financial emergency?

(1) When you get your first job.
(2) When you recognize that an emergency might be on the horizon.
(3) When you only have a month’s worth of money left.
(4) When you are finally out of money.

Question 2: Where is the best place to look for help in a financial emergency?

(1) Family and friends.
(2) Government and non-profit organizations.
(3) Your bank or credit card company.
(4) Financial advisors who advertise on the Internet and have helped others.

Question 3: When should you tell your credit card company that you have a financial emergency?

(1) Right away, as soon as you can.
(2) When you are about to miss your next payment.
(3) Before you miss your third payment in a row.
(4) Never, because they are then likely to shut down the credit card you need.

What Not to Do!

There are two things that people often do in a financial emergency that are counterproductive and will almost always tend to make things worse:

1. Panic
2. Decide to ignore the emergency and just hope for the best

Most emergencies won’t just go away if you ignore them. In fact, most will tend to get worse and worse. And panicking in any kind of emergency will generally lead to a bad outcome.

Instead of panicking, here are the five things you should do first:

1. Stay calm.
2. Don’t make any big decisions.
3. Identify the most urgent problems.
4. Decide what kind of help you need.
5. Ask for Help.

Stay Calm

Emergencies of all kinds generally result in stress. In an emergency, you may find that you are suddenly operating under a lot of stress and that may be true for your partner or family, too. This is one of those times when it’s important to actively force yourself to be calm.

Why?

Because some emergencies may need you to make some quick, important decisions. Decisions made under stress are seldom optimal and are sometimes just plain bad. Staying calm can help you keep a cool head and better judge the emergency you are facing.

There are few emergencies that can’t be made worse by panicking. Pausing to think things through carefully in an emergency can be key to a good outcome.

Don’t Make Any Big Decisions that Can Wait Until Tomorrow

In some emergencies, you just have to make some big decisions quickly. If your house is being swallowed by a flood, you may have to decide between standing on the roof and hoping for the best or trying to swim to safety.

Fortunately, most financial emergencies do not come with that level of urgency. In most financial emergencies, you will have time to think things through carefully, identify your options, and then proceed on the best course that you can identify.

A single bad decision can make a financial emergency worse. Think carefully before you act.

Identify the Most Urgent Problems

If you or your family need food or shelter, solving those problems will likely come before almost anything else. If your house has just burned down, finding shelter will come before dealing with the house but dealing with the house will have to come shortly after that.

If you’ve just lost your job, the most important problem might be putting food on your family’s table. Or, instead, you might be looking at not having enough money to pay the rent, buy groceries or pay the credit card bill.

If the most important problems give you a few days or a few weeks to find a solution, use that time wisely. On the other hand, if the most important problems need to be solved immediately, focus on those first and ask for help right away.

Decide What Kind of Help You Need

Many different things can cause a financial emergency. Some require urgent assistance while others will give you some breathing room to work things out. It’s important to identify what kind of help you need to solve the problems caused by financial emergency.

Some things that can cause a financial emergency include:

• Your house burned down. You and your family need food and shelter.
• You have fled an abuser with just the clothes on your back. You need food, shelter, counseling and possibly legal help.
• Your car was just totaled. You need it for work but you don’t have the money to pay for the repairs or buy another car.
• You were just presented with an enormous medical bill and you have no idea how you are going to pay it.
• You and your spouse just had a child. You are trying to survive a period of unpaid maternity leave.
• You realize that you are not going to be able to pay the utility bills needed to keep your house warm this winter.
• Someone broke into your apartment and stole all your valuable possessions.

Most of these problems can be broken down into two categories:

1. Urgent needs that must be solved right away. Needing food, shelter and urgent legal assistance are in this category.
2. Important needs that need to be solved soon but don’t have to be solved today and probably don’t have to be solved tomorrow.

Once you’ve identified the nature of the problems facing you, the kind of help you’ll need will likely break down into one or more of these categories:

• Help with food or shelter or both
• Help with utility bills
• Help with medical bills
• Help with child care expenses
• Help with expenses related to disabilities
• Help with college or university expenses
• Help with an unexpectedly large tax bill
• Help with a large funeral bill
• Help with paying regular bills like the rent or the mortgage or the credit card bill

Ask for Help

Once you have identified the type of help you need, it’s time to identify where you can find help and then ask for it. Waiting to ask for help will usually result in the problems getting worse. The time to ask for help is as soon as you’ve identified what kind of help you need.

Depending on what kind of help you need, you might turn to:

• Family and friends. If what you need is some temporary help to tide you over a tough spot, family and friends might be willing and able to help you with a short-term loan. If so, be sure to pay that loan back as soon as possible or you’ll likely have traded that financial problem for a family or friend problem.
• Insurance. Auto insurance, home insurance and renter’s insurance all cover a surprisingly large number of claims. If your problems are stemming from something that happened to your home, something was stolen from you (even if it was stolen while you were away from home), or an accident or incident with your car, the first place to check will be with your insurance company. If you have a valid claim, they can often process those payments very quickly.
• Disability insurance. Depending upon the nature of the problem that has resulted in your financial emergency, disability insurance may be able to help. Some disability claims may be covered by the Social Security Disability Insurance program. If you are employed, many employers have disability insurance policies that can provide financial assistance in times of hospitalization or injury. Checking with your employer is a good step in the case of medical problems or injuries.
• Unemployment Benefits. If you’ve lost your job, be sure to check to see if you are eligible for unemployment insurance benefits.
• Food Banks. If the immediate problem involves having food for yourself and your family, local food banks can literally be a life saver.
• Your Credit Card Company. If your financial emergency has left you unable to pay your credit card bill, your credit card issuer will most likely offer assistance – especially if you contact them before missing a payment. These firms deal every day with people who cannot pay their bill on time. Instead of losing all of their money, they would much rather lower your payment temporarily or provide longer payment terms or other options that will relieve some of the pressure on you. Calling them right away is a really smart step to take.
• Your College or University’s Financial Aid office. These offices exist to help students and families finance student educations. If you are having trouble paying college or university tuition or other related bills, contacting the financial aid office should be on your list of things to do.
• County and City Assistance Offices. If you aren’t able to pay your utility bills, most states and the federal government have programs that are designed to help. LIHEAP is one example. Most of these programs are administered through local counties or cities. Identifying the office that covers your location and then contacting them may result in significant financial help.
• Your Own budget. Depending on the nature of your financial emergency, you might find that you can cover most of your problem by cutting expenses in your own budget. When possible, that can provide a quick, easy first step in resolving a financial emergency.
• Crowdfunding. If all else fails, you might consider starting a crowdfunding request. Today, many folks will reach out and contribute to individuals or families who are suffering from unexpected financial crises. Sometimes it takes a village to save a family.

List of resources

The following sites provide lists of resources and programs available to folks who are experiencing a financial emergency:

Benefits.gov
At the time of this writing, this US government site listed 185 separate programs offering financial assistance of one sort or another.

United Way 2-1-1
United Way supports 211, the 24/7 go-to resource that helps people across the U.S. and Canada find the local resources they need.

Help With Bills
Learn about government programs to help pay for phone bills, medical bills, and other expenses. Find out about COVID rent assistance. And see if you qualify for welfare.

Emergency Assistance for Homeowners and Renters
Help is available for homeowners and renters during the coronavirus national emergency. You may qualify for financial assistance if you are struggling to pay your mortgage or rent. Federal, state, and local governments are offering help with housing expenses and avoiding eviction.

Consumer Finance Protection Bureau
We’re the Consumer Financial Protection Bureau, a U.S. government agency dedicated to making sure you are treated fairly by banks, lenders and other financial institutions. Help with finances. Talk to an expert about your needs for free.

Red Cross
You are not alone! The thousands of staff and volunteers of the Red Cross are here for you with emergency aid when you need it most, and also advice and assistance to help you recover from a disaster or become better prepared to face one in the future.

Other Resources

While there are many other websites offering links to financial resources for people in need, the links above are legitimate and safe and a good place to start. If you talk to someone at one of these sites and they cannot help you, ask them to refer you to a program that might be able to.

Avoid Con Artists and Scams

One place that you do not want to turn to for help with financial emergencies are the so-called financial advisors who advertise on the Internet or anyone who wants you to pay for their assistance. Instead of providing real assistance, these folks are often out to prey on folks who are under extreme stress because of a financial or other emergency.

Do not pay anyone for financial assistance in an emergency. Authentic, honest help is available to those in need for free.

For further information, see Fraudsters Posing as Brokers or Investment Advisers – Investor Alert

Stay Healthy in an Emergency

When you are facing a financial emergency, it’s especially important to stay as healthy as possible. That means staying hydrated, nourished, sober and mentally clear of mind.

Keeping yourself healthy can make a big difference in your ability to successfully solve the problems you are facing.

Prevent Financial Emergencies

The very best way to prevent a financial emergency is to begin saving for one as soon as possible. People just entering the workforce might not be thinking much about saving for an emergency but that’s the best time to start. A good first goal is to set aside $1,000 for an emergency. If you save $50 a month, you’ll have your $1,000 in just over a year and a half. Prioritize your future over that second cup of coffee at the coffee shop every morning.

Once you have $1,000 set aside, your next savings goal is to have enough saved to pay your bills for three months. Once you get there, you will want to move on to having enough money to pay your bills for six months.

Once you have those savings, what previously might have seemed like a dire financial emergency can instead become a calm situation that you can cover with your emergency savings and then, over time, replenish those savings.

The Bottom Line

Financial emergencies can happen to anyone. When they do occur, it’s critical to stay calm, evaluate the situation, identify the most urgent needs and concentrate on solving those first. After that, identifying other problems and what you need to solve those problems should be the next order of business.

Once you have identified the type of assistance you need, it’s time to ask for help. Waiting to ask for help can delay receiving help and may in fact allow the emergency to become even worse.

There are many private, local, state and federal programs available to people who need financial help. Legitimate programs never charge for advice or assistance. In an emergency, avoid all “financial advisors” who require you to pay them for their assistance. These people are often con artists running a scam.

Answers to the quizzes at the top of the article:

Question 1: When is the best time to start preparing for a financial emergency?

Answer: (1) When you get your first job. Establishing a habit of saving for an emergency will serve you well because having emergency savings can mean the difference between weathering an emergency easily and potentially losing your home and all of your possessions.

Question 2: Where is the best place to look for help in a financial emergency?

Answer: (1), (2) and (3) are all correct answers. Family and friends, government and non-profit organizations, and your bank or credit card company can all be sources of assistance in an emergency. Option (4) “Financial advisors who advertise on the Internet and have helped others” should be avoided at all means. These people usually offer minimal services for a very high cost. Legitimate sources of financial assistance will never force you to pay for their help.

Question 3: When should you tell your credit card company that you have a financial emergency?

Answer: (1) Right away. Asking for help as soon as a financial emergency begins will provide you with the greatest chance of receiving effective help in time. Financial emergencies can happen to anyone.

Credit card companies know this and deal with people who are experiencing financial difficulties every day. They have programs designed to help people facing an emergency.

It’s important to be honest when asking for help instead of feeling embarrassed because you need help.