How To Navigate Financial Setbacks

How To Navigate Financial Setbacks

U.S. household debt grew by $800 million from 2022 to 2023, including a 16.6% growth in credit card debt. Unfortunately, with all this debt out there, financial setbacks are an inevitable part of life for many of us. Everyone deals with financial challenges at some point, like unexpected medical bills, job loss, or market changes. 

However, it's not the setback itself that defines your financial health, but rather how you respond to it. With some smart financial decisions and help from Patriot Bank, you can navigate through financial setbacks and emerge stronger than ever.

Assess the Financial Setback

The first step in dealing with any financial setback is to assess the situation. Take stock of your current financial standing, including your income, expenses, debts, and savings. In some cases, it is easy to see why the setback occurred but sometimes setbacks can occur through a series of subtle events.
Understanding your financial situation can assist you in creating a plan to improve it. This will also prevent you from making poor financial decisions in the future. Some questions to think about while accessing your situation include:

• What caused the setback?
• How much debt do you have?
• What are your immediate financial needs?

Create a Monthly Budget

In times of financial difficulty, having a budget becomes even more crucial. Now is the time to review your spending and focus on important things like housing, bills, and groceries. You should attempt to find ways to cut back on frivolous spending and identify areas where you can free up financial resources. 

Examples of ways to reduce monthly spending include pausing or cancelling subscriptions/memberships, shopping generic brands at the grocery store, and eating at home. Explore budget template examples from NerdWallet to be able to visually see where your money goes each month and sport problem areas.

Build an Emergency Savings Fund

If they were to lose their primary source of household income tomorrow, 66% of U.S. adults would be worried that they wouldn’t have enough emergency savings to cover a month’s living expenses. Having an emergency fund acts as a buffer against unexpected financial challenges. If you don't already have emergency savings, start building it as soon as possible. 

You can start small by automatically transferring money from your checking to your savings account on a regular basis. Ultimately you will want to save three to six months' living expenses in an easily accessible account for emergencies. This will help during difficult times. Patriot Bank offers personal savings accounts to help you start building your emergency savings.

Communicate with Creditors

If you're struggling to meet debt obligations because of a financial issue, the worst thing you can do is ignore the problem. Reach out to your creditors and explain your situation. Many lenders offer hardship/assistance programs or payment plan arrangements to assist borrowers facing financial difficulties. 

Lenders design hardship programs to help borrowers avoid default by reducing or pausing payments, lowering APR, and waiving fees. Qualification for these programs is on a case-by-case basis so you will want to reach out and explain your situation. Proactive communication can prevent the situation from escalating further. If you have a loan with Patriot Bank and need financial assistance, contact us so we can discuss your options.

Prioritize Debt Repayment

If you have high interest consumer debt, paying it down can help you solve ongoing problems with managing your money. The best way to start is by using Nerd Wallet’s debt load calculator to understand how much you owe. This will help you decide if you can use a DIY debt reduction strategy or should consider debt relief options. Two DIY debt payoff strategies that are popular are:

• Debt Snowball Method: Focus on paying off your smallest balance first. Put all extra money toward one loan while paying the minimums on your others.
• Debt Avalanche Method: Focus on the highest interest rate first, then the next highest rate and so on.

If DIY debt payoff doesn't work, try consolidating debts or negotiating with creditors for lower interest rates. Creditors can work with you to implement a debt repayment strategy that aligns with your budget and financial goals.

Stay Positive and Flexible

Maintaining a positive attitude and remaining adaptable in the face of setbacks is essential for long-term financial resilience. Accept the reality of your challenge and work to handle it quickly. Understand that setbacks are temporary challenges, and focus on what you can control instead of worrying about things like inflation and other economic activities that you can't change. Keep adjusting your strategies as needed and celebrate small victories along the way.

Facing financial setbacks can be daunting, but with the right approach, you can overcome them and emerge stronger than before. By assessing your situation, creating a budget, building an emergency fund, communicating with creditors, prioritizing debt repayment, and maintaining a positive mindset, you can successfully navigate through tough times.

Patriot Bank offers financial education resources, savings accounts and financial calculators to help you navigate your finances. Contact us or visit one of our Southern CT & NY branches to get started.