The textbook definition of the word crisis is, “a time of intense difficulty, trouble or danger when an important decision must be made.” If you’ve found yourself in so much debt you can’t make the minimum payments on your credit cards each month, that most definitely qualifies as a crisis.
With that in mind, let’s look at how to handle your own personal debt crisis.
Get Comfortable with a Spending Plan
Given, the best defense is always a good offense; the most favorable time to deal with a debt crisis is before it happens.
Rather than waiting to get into financial trouble and striving to dig your way out, establish a spending plan for your household within which you can comfortably live while setting aside cash for savings and investments.
Remember to leave some room in the plan for entertainment activities as well. If you get too draconian, you’ll create an unbearable situation, which could lead you to drop the plan.
And yes, we’re talking about crafting a budget here. However, “spending plan” sounds a lot better than “budget.”
Establish an Emergency Fund
Also in the spirit of proactivity, put some money aside each month to create a fund to deal with a crisis situation should it ever arise.
Most experts recommend saving three to six months of your take-home pay in an account you can liquidate quickly — without incurring penalties. This will be a heaven-send if your job suddenly goes away or if you encounter a medical emergency or any other large unexpected expense.
You’ll have the ability to deal with it without going into debt.
Clear Up Your Debts
Also, in the spirit of making hay while the sun shines, do everything you can to eliminate your outstanding debt.
After all, even if your income stops, the rest of the world will continue apace. That emergency fund we advised you to create above will go a lot farther if you don’t have any debts to pay.
Diversify Your Income Stream
Yes, you have a great job that pays really well and you’re living a comfortable life because of it. However, what do you have in place to tide you over while you look for a replacement if that job suddenly goes away?
With a side hustle, you can continue bringing in cash to help defray your fixed expenses. Set up an e-commerce business and sell things on the side over the internet. Pick up some freelance work in your profession — be careful to avoid violating non-compete clauses.
Keeping all of your eggs in one basket is a great way to wind up with only scrambled eggs to eat.
Sell Unused Items
Odds are, you have thousands of dollars’ worth of clothing, sporting goods, collectibles and other items around your home going largely untouched.
Sites like eBay or Craigslist were created specifically for the purpose of helping you unload these things.
You could have the solution to your financial problems already in hand.
Debt Consolidation or Settlement
If your finances are already choking you to death, it’s time to seek professional help. A firm like Freedom Debt Relief can assist you in finding the best strategy to get your obligations under control.
Debt consolidation can help you lower your monthly payments to make them more manageable. Debt settlement can help you eliminate them altogether. Which approach is best depends upon a number of different factors, which is why a good consultation should be your first step.
Knowing how to handle your own personal debt crisis before it happens can actually prevent one from occurring. However, even if it does, it’s reassuring to know there are some solid steps you can take to keep your life together while you weather the storm.