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A guide to getting through financial hardship

Mediafeed logo Mediafeed 12/4/2021 Kim Franke-Folstad
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If you’re suffering through a period of financial hardship—whether it was caused by a loss of income, a medical emergency or some other challenging situation—you’re not alone.

Approximately 64% of Americans currently report feeling stressed about money, according to a survey by the American Psychological Association. And many of us are living paycheck to paycheck. Multiple national surveys have shown 50% to 78% of employees earn just enough money to pay their bills each month. If they were to miss a paycheck, some of those bills would go unpaid.

The good news is that as bleak as things may look in the moment, there are a number of places a person can turn to for financial hardship help.

There are also a number of steps that anyone who is experiencing financial distress can take – from applying for financial assistance to negotiating with lenders to finding new sources of income – that can help put them on the road to financial recovery.

Related: 3 reasons why your bank account is frozen

What is Financial Hardship?

Everyone probably has their own definition of “economic hardship” that’s based on their own needs and wants. And the federal government has its own criteria for what counts as a “hardship” when it comes to taking an IRA distribution, looking for tax relief or requesting a student loan deferment. 

But generally, a financial hardship is when an individual or family finds they can no longer keep up with their bills or pay for the basic things they need to get by, such as food, shelter, clothing and medical care.

Warning Signs

Sometimes financial difficulties can sneak up on a person, and catch them completely off guard. And sometimes, the warning signs have been there for a while but were missed or ignored. Identifying the root cause of financial distress can help give you a head start on working through your money issues. 

Here are some red flags that might signal a person is headed for financial distress.

1. Having Credit Card Balances At or Above the Credit Limit

While using credit cards may seem like a good way to get around a short-term lack of funds, the practice could lead to extra fees and a lower credit score. The percentage of available credit someone is using—known as a credit utilization ratio—can indicate to lenders how heavily they’re depending on credit cards to get by. And because it’s one of the major factors in determining a person’s overall FICO score (a credit score lenders use to determine whether to extend credit to a borrower), financial advisors typically recommend keeping card balances at or below 30% of the limit.

2. Juggling Which Bills Get Paid Each Month

It may be tempting to skip a payment from time to time, hoping to catch up eventually—but there can be short- and long-term consequences for juggling bills. Insurance coverage may be lost. There may be a late fee, or a bill could be turned over to a collection agency.

Utilities can also be shut off, and a deposit might be required to restart the account. Making late payments on a credit card could lead to a higher interest rate on the account. And late payments and defaults can hurt credit scores.

3. Only Making Minimum Payments on Their Credit Cards

It may be necessary to make minimum payments if times are especially tight, and there likely won’t be any short-term harm. But even if the cardholder stops making purchases, just the interest charged will keep the account balance growing, possibly extending the amount of time it takes to pay down that debt by months or years.

4. Often Paying Late Fees or Overdraft Fees

A one-time mistake may serve as an annoying reminder to be more cautious with money management, but if late fees, overdraft fees and overdraft protection transfers become a regular thing, they can add another layer of worry to a person’s financial burden. (Using alerts, automatic payments, and apps may offer a more effective method to track bills as well as deposits and withdrawals.)

5. Having a High Debt-to-Income Ratio

Lenders often use a person’s debt-to-income ratio—a personal finance measure that compares the amount of debt you have to your income—to determine if a borrower might have trouble making payments. If a person’s debt-to-income ratio is high, it could make it more difficult to borrow money, or to get a good interest rate on a loan.

6. Tapping Retirement Savings to Pay Monthly Bills

In certain cases, the IRS will allow an account holder to withdraw funds from a 401(k) or IRA to cover an immediate and heavy financial need (such as medical expenses, payment to avoid eviction or repair home damage) without paying the 10% early withdrawal penalty. But taxes will still have to be paid on those distributions. And taking that money now, instead of letting it grow through the power of compound interest, could have serious repercussions for the future.

Dealing with Financial Hardship

For those who’ve been struggling for a while, or who’ve had a sudden but substantial financial loss, it might feel as though they’ll never recover. But there are several options those who are experiencing financial trouble might consider taking to get back on track. Some they can do for themselves, while others might require getting financial hardship help from others. And while some might be temporary, others take a longer view. Here are a few:

1. Reducing Monthly Spending

Creating a monthly budget can help individuals and families prioritize and guide their spending decisions. This may involve prioritizing your monthly expenses, starting with the essentials and going down to the “nice to haves.” Once you’ve established which expenses are the most important, you may then be able to look for places to cut back or cut out of your budget altogether. Cutkacks may not feel fun, but they can help jump-start your recovery.

For example, could you cut costs if you cooked meals yourself more often? Are you trying too hard to keep up with what friends and family are spending on clothes, vacations, and cars? Are there monthly bills that could be reduced (cable, internet and phone services; manicures and other beauty treatments; or even rent, insurance or car payments)? It may help to start by tracking expenses for a month or so to get an idea of where money is going, and then sit down and map out a more realistic path for the future.

2. Creating a Debt Reduction Plan

Along with a budget, it also may be useful to come up with a plan for paying down credit card balances, student loans and other long-term debt. It’s important to always make the minimum payment on all these bills, if possible, but a personal debt reduction plan could help with prioritizing which bill any leftover money might go toward after all the household expenses are paid each month—or the money might come from a tax refund, bonus check from work, or a gift. Knocking down debts that include high amounts of interest can eventually free up more cash to put toward short- or long-term savings goals.

3. Looking for Ways to Earn Extra Income

Is there a way to turn a hobby, skill, or interest into some extra funds? Maybe a favorite local business could use some part-time help. Or if a second job is out of the question, perhaps a side gig with flexible hours is a possibility. Writers, artists, and designers, for example, may be able to turn their talents into a side business. Babysitting the neighbor’s kids or running errands for an older person are also options. And, of course, a growing number of on-demand services are employing drivers, delivery persons and other workers.

4. Considering a Loan to Consolidate Bills

Getting a personal loan for debt consolidation won’t make money problems go away completely—but it might make managing payments a little simpler. With just one monthly payment (instead of separate bills for every credit card or loan) it can be easier to keep tabs on how much is owed and when it’s due. 

And because interest rates for personal loans are typically lower than the interest rates credit card companies offer (especially if a rate went up because of late payments), the payoff process for that debt could go faster and end up costing less. (Generally, lenders offer a lower interest rate to those who have a higher credit score, borrowers who are already behind on their bills may pay a higher interest rate or have more trouble getting a loan.)

Student loan borrowers also may want to look into consolidating and refinancing with a private lender to get one manageable payment and, possibly, save money on interest with a shorter term or a lower interest rate. Refinancing may be a solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans and/or private loans. Federal loans carry some special benefits that private loans don’t offer, including public service forgiveness and economic hardship programs, so it’s important for borrowers to be clear on what they’re getting and what they might lose if they refinance.

5. Notifying and Negotiating

Ignoring credit card payments and other debts won’t make them disappear. Borrowers who can clearly see they’re headed for financial trouble may wish to notify their credit card company or lender and try to work out a more manageable payment arrangement. (There are debt settlement companies that will do the negotiating, but they charge a fee for their services.) 

A credit card issuer may agree to a reduced, lump-sum payment or a repayment plan based on the borrower’s current income, or it may offer a hardship program with a lower interest rate, lower minimum payments and/or reduced penalties and fees. The options available could depend on why a customer fell behind or if they’ve had problems before.

Financial hardship assistance is sometimes offered by mortgage lenders. Because these lenders generally don’t want their borrowers to foreclose on their homes, it’s in their best interest to work with borrowers when they get in trouble. The lender may be willing to help the borrower get caught up by forgiving late payments, or they may change the interest rate of the loan or lower the payment.

If you have federal student loans and are experiencing a financial hardship, you might qualify for a special repayment plan, such as pay-as-you-earn or an income-based repayment plan.

It can also be helpful to reach out to service providers (such as water, electricity, internet) and let them know you are experiencing financial difficulties. Providers may be willing to work with you and you may be able to come to an agreement well before any shut-off actions go into effect. This can also save you from late fees, or going into collections.

6. Getting Financial Help

There are also a number of government programs designed specifically to help people overcome sudden financial hardships. Those who’ve lost a job may be entitled to unemployment benefits. If that job provided health insurance, you may want to look into COBRA to see if you can maintain affordable health insurance. Those who were injured at work may be entitled to workers’ compensation. Also, some people facing financial hardship may qualify for state or federal benefits like Medicaid or Social Security Disability.

Though not free, a financial professional who specializes in planning, saving, and investing may be a worthwhile investment. He or she may be able to offer a fresh perspective and help create a path to financial freedom.

Preparing for Current and Future Challenges

Once you’ve developed your personal plan for overcoming financial hardship, you can begin working on your goals of becoming more financially independent. If the cause of your hardship is temporary (you were out of work but quickly found a new job, for example), it may take just a few months to get back on your feet. If the problems are more difficult to overcome (you’ve lost income through a divorce or you or a loved one has an ongoing medical condition that requires expensive treatment), the timeline could be much longer. Once you’ve put your plan in place, you may want to review it on a regular basis, and perhaps do some fine-tuning.

The Takeaway

Many people go through periods of financial hardship, and often for reasons that are beyond their control. But that doesn’t mean they are out of options. There are many simple and effective steps people can take–such as cutting monthly expenses, consolidating debt and getting outside assistance–that can help them get back on the right financial track.

Ready to get your finances organized? You also may find it easier to track expenses and stay on budget by separating your money into virtual envelopes, buckets or “vaults.”

Learn More:

This article originally appeared on and was syndicated by

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