What to Expect After These 5 Personal Financial Disasters


Financial hardships can happen despite the most careful planning and saving. If you're facing a crisis, read on to learn what you can expect to happen and how you can handle these challenges. There are always options, and you can recover from even the most feared financial situations.

1. You've lost your primary source of income

There are many reasons why you might be facing a sudden, devastating loss of income. Sometimes family, personal, or medical situations make it impossible for you to continue working; in other cases, the job itself ends, and you have to start over again. Losing your primary income source, of course, hits you hard financially. Other income — a partner's salary, perhaps, or side job — can help alleviate the financial impact. But that help is usually limited, either in amount or in duration. Here are a few things you can expect to happen.

Loss of savings

Losing your income means you quickly start relying on your emergency fund and any other savings you've accumulated. If you're able to quickly reduce your expenses, you can make your savings last longer.

Increased debt

If your savings aren't adequate, or if you face unexpected financial needs, you may find yourself debt-dependent in order to handle incoming bills. The worst case scenario is when you have to rely on high-interest debt (such as credit cards) to keep up.

Financial stress

Dealing with income loss, financial insecurity, and all the changes you have to make as a result quickly leads to stress. Stress, unfortunately, is no friend to you and decreases your ability to make smart, long-term decisions.

Change in lifestyle

You'll need to cut your expenses as much as possible to handle income loss; though these changes aren't necessarily bad, they can cause emotional pain, personal discomfort, and induce more stress. Change is difficult even in positive circumstances, and change induced by financial crisis exacerbates stress and insecurity.

What you can do

There are many ways you can positively handle a loss of income:

  • Do your best to reduce your immediate expenses, even if only temporarily.
  • Call and negotiate for delayed payment plans with creditors or other major billers. (See also: Pay These 6 Bills First When Money Is Tight)
  • Get some money coming in; even a small amount of what you used to make will help you deal with bills and expenses. (See also: How to Come Up With $1,000 in the Next 30 Days)
  • Reach out to your personal and professional network for work opportunities.

2. You've defaulted on a loan

Defaulting on a loan feels like one of the worst possible financial situations. However, getting in over your head financially can happen to anyone. It doesn't have to end your financial future, but it will have some impact on your financial present. Here's what can happen after defaulting on a loan.

Lowered credit score

Late payments, missed payments, and account closures on debts can all bring your credit score down. A low credit score isn't the end of the world, but it will limit your ability to establish credit, get loans, or even rent a house or buy a car.

Calls from collection agencies

Different lenders have different rules, but after some period of nonpayment, your loan will most likely be passed on to a collection agency. While some agencies maintain a professional tone and approach, some do not and might become intrusive or aggressive. Even with courteous collectors, it's stressful and unpleasant to get letters and calls demanding debt repayment you know you can't afford. (See also: Account in Collections? Here's How to Fix It)

Repossession of collateral

If the loan you've defaulted on has collateral — such as a mortgage or car loan — you may find yourself facing repossession. Home foreclosure is usually a last resort, as it's messy and costly for mortgage companies to handle.

What you can do

The best way to handle defaulting on a loan is with proactive negotiation. Try these steps:

  • Negotiate a payment plan for delayed and/or split payments in order to avoid collection agencies.
  • Negotiate a debt settlement with the bank or credit holder. You'll usually need to make a cash payment, but only for a percentage of the total amount owed in order to clear the debt entirely.
  • Contact your mortgage company if the loan defaulted on is your house mortgage; explain your situation and ask them to help you work out an affordable, alternate payment plan. They don't want your house; they want your cash, and they may be willing to negotiate terms and minimum payments.
  • Examine options to consolidate all your debt into a single, smaller payment you can afford.

3. You've lost money in an investment

So you took some of your hard-won savings and decided to invest. Maybe it was in a friend's startup, a real estate project, or a stock that seemed like a sure thing. It didn't work out, and now you've got to handle the fallout. Assess the impact and start taking positive steps forward. Here are a few things you might initially face:

Loss of money

The most obvious consequence, of course, is the loss of your money; that hurts. Remember, however, that just as you lost money, you can also invest and save money. One painful investment loss does not poison the rest of your savings or investments.

Loss of confidence

The psychological impact of a bad money move can make you doubt your own financial prowess and decisions. It's okay to question yourself, but you want to learn, not stay stuck. (See also: Your Loss Aversion Is Costing You More Than Your FOMO)

Smaller retirement savings

If you were counting on the return from this investment as a key part of your retirement savings, you're now facing a major blow to your retirement plan.

Less ability to invest

A loss of money means, of course, lowered liquidity. You may not be financially able to build up savings quickly, which reduces your ability to invest and start rebuilding your portfolio.

What you can do

You don't have to run away from investing (nor should you!) because you made one choice that didn't work out. Start proactively using these options to recover:

  • Meet with a financial planner to assess your options and go over any lingering financial questions or doubts.
  • Rebuild emergency savings, if you've used them up as part of your investment.
  • Lower expenses or increase income to replace what you've lost, by cutting back on expenses and adding in some side work for a while.
  • Keep your savings steady; build up to a minimum investment amount and examine the safest high-yield options for your next investment.

4. You've racked up high-interest debt

It's never the plan to get stuck with high-interest debt. But with the right (or wrong) combination of life events and decisions, you can find yourself there. High-interest debt is a particularly bad kind of debt: If you can't make more than the minimum payments, your debt will continue to grow at a very fast rate. It's likely you'll be facing some unpleasant consequences such as:

Poor credit score

If you've made a late payment or missed one altogether, your credit score can be affected negatively. And if you've accumulated more debt than you can manage, and you're frequently missing payments while you try to keep up, your credit score can take a big hit.

Loss of opportunities

When you're struggling to keep up with debt payments, you're limited. Whether it's an investment opportunity or the chance to enjoy some time off with friends, the burden of high-interest debt can keep you from affording the opportunities that come your way.

Financial embarrassment

Many people still struggle with feeling ashamed or embarrassed about having debt, even though having debt — a lot of it — is quite common. In fact, according to a 2017 poll conducted by Northwestern Mutual, 40 percent of Americans spend about half their monthly income on debt payments.

What you can do

Being burdened with high-interest debt may feel like a problem you can't solve, but there are steps you can take to reduce its impact on your life. Start with these actions:

  • Communicate with the debt holder if you've fallen behind on payments. You can often negotiate a split or delayed payment, as long as you can guarantee a payment of some kind.
  • Learn about debt repayment strategies and which one might work best for you.
  • Whatever you do, don't add any more to your debt! Put away any active credit cards and reduce normal expenses so you can live on your income without adding more debt to your life.

5. You're recovering from a divorce

Divorce not only has a huge impact on your emotional and psychological state, but also on your financial well-being. First, divorce itself is expensive; the average cost is between $15,000 and $20,000. In addition to footing your part of that bill, you might also face some of these huge costs:

Disproportional expenses

You might find that your expenses, carried over from your pre-divorce life, exceed your current, post-divorce income. You can reduce or eliminate expenses, but sometimes you're locked into agreements (such as a lease or a cellphone service contract) that keep you at a higher expense level than you can reasonably afford.

Lowered investment returns

If you and your former spouse were contributing to a joint account, you'll have to divide that up somehow in the divorce proceedings. If it's an even split, your half in an account by itself will produce reduced returns.

Big tax bills

If part of your divorce was to liquidate and divide all assets, you might be in for an unpleasant surprise when tax time rolls around. You may have to pay a hefty capital gains tax on certain investments or other assets that have been liquidated.

What you can do

By taking some smart steps forward, you can reduce the negative financial impact that a divorce has on you. Make these moves to take control of your financial life, post-divorce:

It's not easy to recover from a financial disaster, but recovery is always an option. The most important things you can do are, first, face the situation squarely in order to figure out what your best options truly are. You may have more than you think.

Secondly, don't be afraid to ask for help, which doesn't necessarily mean asking for money. Rather, you may be able to get help from your creditors (lowered payments), from your network (job opportunities), from your local community (selling your car, building a side hustle), and more.

Moving forward and rebuilding takes time, but it's within your power.

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