APR 12, 2012
Your car dies, and the repair will cost more than the Blue Book value. The hot water heater blows up and ruins everything around it. You or a loved one need a medical treatment thats not covered by your insurance.
Almost everyone has been in the position of dealing with a financial disaster. Hopefully, when one happens to you, you have an emergency fund in place to help cover the costs. However, if you dont have emergency cash on hand or the expense is so great it will wipe out your backup funds it can sap your spirit.
Financial disasters can come in many forms, from major car or home repairs, to unexpected medical expenses and even job loss. While its impossible to completely avoid lifes financial difficulties, or to ever be 100 percent prepared for them, it is possible to help your finances recover from the impact.
First, if youre truly in a crisis situation, go ahead and tap your emergency fund. Losing the 1 or 2 percent interest your money is earning in a savings account beats paying the double-digit interest youre likely to incur if you use a credit card to cover the expense. If it looks like the expense will exhaust your cash cushion, youll need to weigh your options and the long-term impact of each. If youll be able to rebuild your emergency fund faster than you would be able to pay off a big credit card bill, it may be worth the risk to use up your reserves.
If you dont have an emergency fund, youll need to find other ways to pay for the expense. Your options might range from negotiating a payment plan and taking a second job, to personal loans from family or friends. Using a credit card should always be your last resort, as the high interest rate means you could be paying for your troubles long after the initial crisis is passed.
Once the expense is covered, focus on how youll repay the debt. If you had to take a loan, repaying it should become a priority. If you were forced to use a credit card, pay down that debt as quickly as possible. Dont forget that replenishing your emergency fund or establishing one if you still dont have it is every bit as important as paying for the crisis.
Finally, dont beat yourself up if youve faced a financial disaster and had to go to extreme measures to deal with unexpected costs. Life is full of hard lessons. Learning from experience is part of growth and its essential if you want to recover from financial disasters.