The Three Things You Should NOT Do In a Financial Emergency

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The Three Things You Should NOT Do In a Financial Emergency

None of us can predict the future, so if disaster strikes, never think you’re alone! Financial crises happen.

However, panic and bad decisions could make the situation substantially worse. 

The stress of financial pressure can cause untold anxiety, so let’s run through the top three pitfalls to avoid and techniques to ensure you’re in a great position to find a way back into the black.

1. DON’T Blindly Apply for More Credit 

Our first mistake is thinking that more credit will immediately solve a financial issue. While it might, you need to make those kinds of decisions with a level head.

Some of the worst-case scenarios include:

  • Borrowing from an unregulated lender or loan shark (sometimes without realising!).
  • Applying for multiple loans, creating a flurry of hard credit checks on your file.
  • Taking out lending at a crazily high interest rate that you’ll struggle to ever repay.

Some online providers offer emergency ‘easy access’ credit i.e. Wonga and the like – but you’re well advised to read the fine print, compare rates, and make sure you can afford the repayments.

Any respected lender will offer customer support to help decide whether a short-term loan is a viable solution, so it’s well worth getting in touch to discuss rather than applying online for the first product you come across.

2. DON’T Tap Into Your Retirement Savings

At first glance, it might make sense to draw on pension funds if you’re in serious need of a cash injection and you have a healthy retirement pot.

While the temptation exists, it’s often a terrible decision, with long-term ramifications such as impacting your ability to retire and incurring heavy penalties or tax charges.

Early withdrawals often attract steep fees, but the most significant risk is losing out on compound growth crucial to your financial future.

3. DON’T Cut Essential Expenses

The third recommendation is to ensure you don’t react to financial difficulties by cancelling things you shouldn’t sacrifice.

Insurance policies, for example, may feel like an unnecessary expense. However, if your current predicament doesn’t resolve, you might rely on your policies to ensure you don’t lose your home or find yourself without a car.

Cancelling insurance leaves you at extreme risk of encountering thousands of dollars of expenses you cannot pay with zero back-ups.

If you’re worried about paying the premiums, the best step is to contact your provider.

Many insurers will offer a temporary suspension or a short-term transfer to a cheaper product, so you don’t lose your policy altogether.

How to Cope With a Financial Emergency

So, what can you do if your income suddenly nosedives and you’re left stranded? There are all sorts of potential solutions:

  • Contact The National Debt Counsellors Association. They can recommend local advisers who have expertise in resolving overwhelming debt.
  • Reduce any overheads you can comfortably live without – think entertaining, gym memberships and other non-essential services.
  • Make minimum payments on your borrowing. You can cut back on your repayments to the bare minimum until the situation stabilises.
  • Reach out to your bank and loan or credit card providers. They might be able to provide temporary relief, such as a pause in repayments to help you get back on your feet.

Finally, never hesitate to seek help. You may be able to apply for benefit payments, deferments or redundancy support, as a few examples.

Professional advice can be hugely helpful in resolving practicalities and providing a sympathetic voice to discuss the situation with.

Keeping calm will help you choose smart options that won’t compound your financial emergency into something worse.

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