5 Steps to Rebuilding After a Financial Crisis
Sometimes life takes a detour, and finances takes a setback from the original goals we planned. Whether financial harship is created through a job loss, unexpected medical emergency, or uninsured loss, it’s important to know how to rebuild after a financial crisis.
Step 1. Budget
Budgeting is key to have while recovering from a financial crisis. List all income, then develop a plan for expenses with the ultimate goal to pay all bills on time, save money, and eliminate debt.
If expenses exceed income, make budget cuts where necessary on items, subscriptions, or monthly “treats” for the time being while recovering is still in the budgeting plan.
Step 2. Debt Repayment
During a financial crisis debt repayment is typically a challenge most face and often rely on credit cards to weather the storm to make ends meet. While it’s understandable someone may prefer the assistance of credit cards for a brief time, utilizing any emergency funds and reviewing all debts from the budget is the recommended approached strategy. Most creditors would prefer to work out a repayment plan than not receive any repayment, so don’t be afraid to call creditors to ask for up-to-date account information.
Step 3. Rebuilding Credit
Credit history can be tracked with a credit report. Credit reports include payment history and balances owed for credit accounts both open or closed, including auto loans, mortgages, credit cards and student loans. All lines of credit and repayment help establish a credit score, which is a numeric system that falls on a scale of 330-830.
After a financial crisis, a credit score may drop if payments are missed. The best way to avoid hurting the credit score would be to contact any creditor to discuss repayment options, pay on time, avoid taking on additional debt, and dispute any errors.
Step 4. Emergency Savings
Rebuilding from a financial crisis will include thinking about future emergencies. Preparing for the unexpected creates a more secure, successful financial future. Building an emergency savings account by taking a portion of your paycheck and automatically deposit funds into a separate savings is a simple way to begin.
Step 5. Replenishing Retirement Savings
During a financial crisis, individuals may turn to their retirement fund for additional assistance. Withdrawing against a retirement fund may cost a significant penalty—and unfortunately, it’s harder to “unborrow” or “unwithdrawn” funds from a retirement account.
Interested in contributing more to retirement or replenish retirement savings? Contact the AECU office nearest you to make an appointment with a financial advisor.
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