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How To Turn A Financial Tragedy Into A Temporary Setback

December 1, 2020 By editor

Is it really possible to turn a financial tragedy around? Maybe you can’t eliminate it. But can you ensure that its effects will be temporary?

Yes, that’s possible. Even the 69% of Americans who said that their economic situation got worse during the pandemic and recession of 2020 can recover from this. It will be very hard and a long recovery is to be expected. But all is not lost.

Of course, it would require effort on your part to ensure that the current crisis you are going through will not completely destroy your finances. The earlier you act to reverse the effects, the less you have to recover. Once you recover, you can start working on strengthening your personal finances. That way, you can be in a more secure financial position. You’ll be in a better position to survive the next financial tragedy that will come your way.

How to manage a financial tragedy

The question is, how can you ensure that this current financial crisis that you’re going through will not leave a permanent effect on your finances? After all, trying to have a good financial position is challenging already. Trying to manage your finances while you are in the midst of a difficult situation will make things harder. It can be done, but you have to commit to it. The key is to make your finances stronger.

What can you do to make this possible?

Practice frugal spending

Since you are in the midst of a financial tragedy, this is a must. You have to learn how to prioritize your spending so you can focus only on what is important. That’s what frugality is all about. It’s not about restricting your lifestyle. Instead, it’s allowing you to support the life that you want despite your limited resources.

What’s great about being frugal is it trains you to be better at spending your money. You’ll scrutinize your expenses and you’ll make sure that it aligns with your priority expenses. This is a great habit to develop. It’ll really help you become a smarter consumer.

Manage your bills closely

To help manage your financial tragedy, you should also learn how to manage your bills properly. Keep a close eye on all your bills and scrutinize which of these you really need – and which of these you can go without.

Sometimes, there are bills and expenses that we keep on paying for that we don’t really need anymore. We may have needed them before. But changes in our lives rendered them unnecessary already. Now that you are in the midst of a tragedy, you have to get rid of the bills if they’re not useful anymore. Anything you can save will help make your finances more secure.

Continue paying down your debt

If you have debts, you should continue to pay it off. If your finances are compromised because of the tragedy you are currently in, you might not feel like prioritizing your debt payments. You’ll want to conserve your finances and focus on the expenses that will help you survive. This means paying for food, groceries, and also your bills. This also includes any expense that you need to meet to get yourself out of the tragedy you’re currently in.

But surviving the tragedy is not your only task. You have to make sure that you can make your finances stronger. Part of that is to ensure that anything that can weaken your finances will have to be dealt with. That includes your debts. That means you should find a way to continue paying off your debts.

Avoid accumulating more debt

Finally, you can keep your financial tragedy from getting even worse if you keep your debts down. It’s not enough that you pay off your existing debt. You have to make sure that you won’t add more to your balance.

The thing is, this could be harder to do. That’s because people usually resort to borrowing money when they are in a crisis. They use their credit cards to pay for necessities. While that can help you meet current needs, it will cost you in terms of high-interest rates. If you can’t pay your balance in full, your balance will grow because of the finance charges. Since you are in a financial tragedy, there’s a high chance that this will happen.

If you really need money, you might want to consider other options. Like during the coronavirus pandemic, 14% of Americans have borrowed from family and friends just to keep themselves from falling behind on bill payments. This is probably better than using your credit card. Depending on who you’ll borrow money from, there’s a possibility that they won’t charge interest on your loan.

The bottom line is, find a way to avoid more debt so you won’t make things worse for your finances.

Why you should deal with your financial tragedy wisely

You might be thinking: why is it important to deal with this now? Can’t I take a breather since this financial tragedy is so hard to overcome?

You do have a choice to postpone working on your finance. But you have to realize that it won’t make things easier for you in the future. The longer it takes for you to work on the damages to your finances, the harder it will be for you to recover.

If you need motivation, here are the different reasons why you should deal with this financial tragedy wisely.

To care for your financial health

If you don’t want to ruin your financial health, you have to make keep any crisis from doing any damage. The health of your finances will allow you to survive the one that you’re going through right now. It will also ensure that if you go through another crisis in the future, you have a better chance of getting through it unscathed. So if protecting your financial health right now will make that happen, then it’s worth the effort.

To lessen your recovery period

Another reason to be smart while going through a financial tragedy is to minimize the recovery period you have to go through. Wouldn’t you like to immediately continue with how you lived your life before the crisis happened?

That doesn’t mean you have to spend recklessly. But you can enjoy the freedom to spend without feeling guilty. If you keep the damages on your finances from being too great, then you can back to living your preferred lifestyle as if nothing happened.

3 Reasons Why It’s Better To Pay Debts During A Crisis

November 28, 2020 By editor

Can you pay debts while you are going through a crisis? You may think that it’s impossible. But the truth is, it might serve you better to be in a crisis while trying to get out of debt.

If you doubt that, take a look at how people are reacting during the pandemic. According to reports, people were saving more money during the pandemic. This means people were more in tune with their finances. They started to be more cautious about how they spent their money. If people can act this way with the right motivation, then it’s not surprising for them to be able to pay debts even in the midst of a crisis.

If you really want it bad enough, you can find a way to pay off your debts no matter what you’re going through. Even if your finances are compromised, you’ll know what to do to continue paying it off. After all, there is a debt solution that fits all types of financial situations. So you can bet that even if you are in a dire financial situation, you can still take care of your debts.

Why is it easier to pay debts during a crisis?

What makes it great to pay debts during a crisis? There are a couple of reasons why this particular timing will make things easier. Before you know it, you’re making your last payment towards your high credit card balance.

So why should you take advantage of a crisis to pay off your debts?

You choose to save more

The first reason involves saving more. When you are in the midst of a crisis, you make a more conscious effort to save more money. Why? Because you feel fear and anxiousness. You don’t know when the crisis will end. What if it takes a long time for things to pick up? What if things get worse? How will you survive?

The best way to do that is to conserve your resources. You will make an extra effort to save more money so you can increase your reserve fund.

But while you are pinching pennies to increase your savings, you’ll also exert an effort to increase your income. To be more specific, you’ll diversify it to make your income more secure. That way, if you lose one, you have another source to rely on.

Anything that you earn on the side can be used to save and pay off your debts. Especially if you already have enough emergency funds. If you can get rid of your debts, you don’t need to earn a lot each month.

You have fewer options to spend

Being in a crisis will also give you fewer options to spend. At least, if you really know what is at stake if you become reckless with your spending.

If you are in a saving mode, you’ll be less likely to think of spending. Even if you get a windfall, you’ll be more inclined to put it aside in hopes that it will help you survive the crisis.

But that’s not all. If your efforts to increase your reserve fund lead you to increase your earnings, you will be too busy to even think about spending. You’ll be working longer hours to boost your funds. If you’re preoccupied with work, you won’t have time to spend. Even in your free time, you’ll be too tired.

If you combine the fact that you’re saving more and spending less, you’ll have more extra money to use to pay debts.

You actively avoid new debt

While this won’t directly affect your ability to increase your debt payments, it will keep you from making it worse. If there’s a crisis, you’ll find yourself getting better at avoiding debt.

You might be thinking – wouldn’t people be more reliant on credit when there’s a crisis? This is true if people lost their jobs – or their income has been compromised in one way or another.

But for those who still have a stable job despite the crisis, they can still avoid debt. Do your best to lower your monthly expenses so you won’t run out of cash. If you do, that’s when you’ll be forced to use your credit cards. It would only make things harder for you to pay debts.

How a crisis can bring about better financial habits

You see, if you have the right attitude, you won’t have to fear going through a crisis. After all, whatever you’re going through at the moment – it won’t be the last. There will be other problems and hurdles to go through in the future. There will be another time when you have to pay debts while you struggle with your finances. If you want to survive all of these, you have to learn how to use every crisis to your advantage.

Because the truth is, the crisis that you’re going through will have an effect on how you spend your money. Take a look at the effects of the coronavirus pandemic on the spending habits of Americans. You’ll find that almost 2 out of 3 Americans admitted that their spending habits changed.

Whether that change will result in the improvement of your financial situation or not, that’s entirely up to you. But can a crisis lead you to be better at managing your finances?

Absolutely. Here are the different ways this can happen.

A better understanding of the value for money

There’s a saying that you’ll never understand the value of something unless it’s gone. This is true for your finances as well. Once you are forced into a situation with limited finances, you’ll realize the real value of money. You’ll know how much it can affect your lifestyle if you suddenly have to live with less cash to spend.

This will give you a better appreciation of how your life will be if you have enough money. That can lead you to be more cautious with how you use it – which is the second reason why a crisis can give you better financial habits.

A shift in spending habits

If you understand how valuable money can be, you will be more careful with how you use it. This will bring a huge shift in how you spend your money. Not to mention the fact that being in a crisis means you don’t have a lot, to begin with. You need to make sure that whatever you have will last for as long as possible. Especially if you’re not sure when the crisis will last.

To improve your spending habits, you have to take an accounting of your finances. How much money comes in every month? What are you currently spending on? If you haven’t done it yet, you might want to look at your budget and find out what expenses you can cut off. Lowering your monthly expenses will give you extra money to save or pay debts.

A more cautious approach towards debt

Just like your spending, you’ll also learn how to be cautious with how you use debt. This will come in handy because when you’re in a crisis, you’ll be more tempted to use credit to make ends meet. But there will be no guarantee that you can pay it off.

In one report, 2 out of 3 Americans with credit card debt admitted that they will have a hard time meeting even the minimum payment. This may be because a lot of Americans lost their jobs during the pandemic.

If you know that your finances are compromised and you can’t afford to pay debts, you’ll be very cautious with how you use credit.

How To Avoid The Credit Card Trap

November 25, 2020 By editor

A lot of us have fallen down the credit card trap. After all, this is one of the most preferred payment methods by consumers. You can’t really blame them for thinking that way. Using credit cards will give you another level of security. Some offer a warranty if you use a credit card to pay. Others have rewards that you can really benefit from.

While using a credit card may be convenient, it’s also very easy to abuse. It feels like an extension of your wallet. You think that since your name is on the card, you are spending your money. So you are more reckless when you use it. This is probably why the average balance of credit cards is almost $6,200. And this was at the beginning of 2020. Imagine how much that has already grown after the pandemic and recession?

Stop thinking that you are using your money when you use your credit cards. This mentality is what makes most of us fall down the credit card trap. The truth is, you are spending the creditor’s money. Whatever amount you charge to your card will be paid back – with interest. So if you think about it, the convenience brought about by credit cards comes with a price – the high-interest rate.

This does not mean you should stop using your credit cards. No. It does come with benefits. Like the rewards program that can help you save money and get freebies. You don’t have to miss out on these. You just have to learn how to avoid the credit card trap.

Tips to avoid the credit card trap

According to one survey, almost 8 out of 10 credit cardholders are worried that they won’t be able to meet payments. The combined effects of the pandemic and the recession have taken a toll on the finances of the average American. Even if you had enough emergency funds, that would have been severely depleted by now. Especially if you were one of those who lost their job or business. Although the government tried to help save the economy and every household through the stimulus package, it’s not enough.

This is why a lot of consumers started to rely on their cards. That can easily push people into a credit card trap. What can you do if you don’t have a choice? Here are tips that will help you use your cards properly.

Budget your credit card use

Start by making sure that you align your credit spending with your budget plan. Take a look at your current financial position and see what you can really afford to spend. You need to be realistic about this. That means you have to scrutinize what you’re spending on a monthly basis. Find out what you can do to lower your expenses so you don’t have to rely on your credit cards.

But in case you do have to rely on it, make sure that you include your credit card spending each month in your budget plan. That way, you can determine the fund that you will set aside to pay off the debt. Once the billing statement arrives, you have to use this fund to try and pay the balance in full.

Know your credit limit

It’s also important for you to keep an eye on your credit limit. Maxing out your credit card will lead to penalties and charges that will just make things worse. Not to mention the fact that once you reach that limit, your balance would be very high. It would be very hard to pay it back.

But this is not the credit limit that you should be watching out for. If you set a budget for your credit card spending each month, that’s the limit that you should avoid. It’s not the limit set by the credit card company. It’s the limit that your budget plan can afford.

Make sure every card has a purpose

It’s easier to be a smart credit user if you are monitoring one credit card. But what if you own more than one card? This is what a lot of Americans are facing. Most of us own more than one credit card. Why? Because we use it to get rewards from different stores and establishments.

While the cards may have been offered so you can enjoy a specific reward, check if you’re still able to benefit from that. A lot may have already happened since you first got the card. If it no longer serves a purpose, you might want to consider closing the cards that don’t have a purpose in your monthly expenses.

Be conscious of your credit utilization rate

Finally, you have to be conscious of how much you are spending on your credit cards. The moment you stop monitoring, you put yourself in danger of falling into a credit card trap. To be specific, you have to monitor the relationship between your balance and credit limit. Ideally, the limit that you should keep an eye out for is what your budget can afford. But even that should be measured based on the acceptable credit utilization rate – which is 30%. So if your combined credit limit is $10,000, your balance should never go beyond $3,000 across all your credit accounts.

How to get out of a credit card trap

What can you do if you are already in a credit card trap? Don’t worry, your situation is not hopeless. You can get out of debt. It will take some time and a steady commitment from you. But you have to persevere.

You see, getting out of this trap will take time. At the least, you need a couple of months to completely get out of debt. It will be longer if your balance is high. So make sure you approach this with dedication. That way, even if you are forced to make sacrifices, you won’t falter in your efforts to deal with your debt situation.

Fortunately, there are two things that will help you accomplish this goal.

Negotiate with creditors

Being in a credit card trap means you have accumulated a lot of debts. Do you have to pay it all back? Yes. ideally, you really have to pay everything back. At least, this is usually true for the principal amount that you borrowed. But you can negotiate with your creditors to lower the interest amount that you have to pay. If there were penalties or other fees invovled, you can also negotiate that they waive these. This will make your debt payments smaller.

If you can prove that you are in a financial crisis, you can even negotiate to have your actual balance reduced.

In case you’re not sure how to do this, that’s okay. There are rules during credit negotiation that will guide you in doing this task. And if you’re not confident in your ability to negotiate, there are also trustworthy debt experts that can help you out.

Change your spending habits

Paying off your debts is for nothing if you don’t deal with the real reason why you fell in a credit card trap. Your spending will have ot be scrutinized if you want to manage your debts properly. Make sure that your budget is updated and aligned with your current financial situation. Include in your budget plan some of your financial goals – like paying off your debts, saving more, etc. These will help you fund these goals so you can reach it.

When your finances are tied up to your funds, you’ll be more cautious of how you spend your money. It’ll make you think twice about spending on unnecessary things – because you know there are goals that you should be paying for instead.

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