Unfortunately even the most responsible people find themselves, at times, in a financial hole they can’t get out of. Whether it’s illness, job loss, or a catastrophic event, sometimes the unthinkable can happen—creating a debt that impossible to recoup. However, it doesn’t mean there aren’t options. Should you find yourself in a seemingly impossible financial situation, consider these strategies.
Find a good accountant
First and foremost, it’s a good idea to find a nearby accountant or financial advisor. This should be someone you can meet with on a regular basis and who can help you set up a financial plan that gets you back on track. Make sure whoever you choose is experienced and makes you feel comfortable. Debt is one of the leading causes of depression and anxiety, so you want to make sure the advisor you select can help create a good action plan and will mitigate stress and worry—not add to it. While you may be thinking, “I’m in debt, I can’t afford to hire a financial advisor!” There’s plenty of advisors who can help offer insight, advice and planning strategies to individuals in these types of situations.
Consider a fresh start
The IRS offers a fresh start program to help taxpayers pay back taxes during periods of financial hardships and help avoid tax liens. This doesn’t just apply to individuals either, small business owners can also take advantage of the IRS fresh start options. These include tax lien negotiation, installment agreements, and offer in compromise (an agreement that allows taxpayers to settle their tax debt for less than the total amount).
Set a budget
Most financial advisors (at least the good ones) will tell you that the most important gift you can give yourself when it comes to getting your finances back on track is to set a realistic budget—one you can stick to you. Aside from job loss or illness, one of the most common reasons people fall into debt is a misuse of credit cards and overspending. Unfortunately, with the availability of high-interest credit cards, it’s easy to get into trouble. This is another reason why it’s crucially important to understand the difference between a want and a need. If there’s something you really want and you don’t have the cash to pay for it upfront—save! And if there is something critical that arises, something that you need, it’s best to look to your savings first before putting anything on a card.
Create an emergency savings fund
Once you get your finances in a healthier place and are able to get back to saving, you may also want to consider setting up an emergency savings fund for unexpected expenses related to health issues, home repair or vehicle maintenance. Emergency funds allow you to keep your savings for long-term financial goals, such a buying a home or retirement and can help alleviate financial stress so you don’t have to dip into your checking account. You should still prioritize putting money in savings, but it doesn’t hurt to start putting just twenty or thirty dollars a month towards an emergency fund. Before you know it you’ll have an extra pool of money to access should any critical expense crop up.
When tackling debt, it’s best to try and start small. Sometimes all it takes is paying off just one thing: a department or store credit to jumpstart the belief that you can get out debt. You may find that knocking out these smaller debts can help give you the confidence to begin looking at those larger balances. Keep in mind (and likely your financial advisor will tell you the same) it’s always best to start paying off higher interest balances first. When faced with a large balance it’s common for people to take the “out of sight out of mind” approach. But the last thing you want to do is ignore high-interest balances which will continue to rack up finance charges, making it harder and harder to get out of debt.
Create a financial calendar and automate
Create a financial calendar to help remind you when important bills such as school loans, credit card balances, gym memberships or mortgage and/or rent payments are due. Take advantage of all the apps and online tools you can use to help support your financial stability. And when possible, automate. Let a program do everything you can, including your bills, monthly transfers, savings, and emergency accounts!
Author: Howard Moore