Reducing Expenses During a Sudden Financial Hardship

Sudden financial hardships happen to everyone. Sometimes, they come in the form of an unexpected bill. Other times they can leave you without an income for an extended period of time. 

One of the best things you can do to help yourself better weather these challenges is to reduce your expenses. With fewer bills to pay, you'll be able to stretch the dollars you have. 

You may also be able to rely upon government assistance, hardship assistance programs, or debt relief programs to help you get by while covering essential costs. Here's a closer look at some of the most important changes you can make to get through a financial hardship.

Cover the Basics During Financial Hardship

Start by making a list of all the expenses you can't live without, including:

• Rent or mortgage payments

• Utilities

• Food

• Transportation

• Medications

• Insurance

• Court-ordered payments you must make (i.e., child support or alimony)

Some of these, like a mortgage payment, are the same each month. Others, like food costs, fluctuate. Review your last few months of bank or credit card statements to get a rough idea of how much you spend on these expenses in a given month.

Ideally, you'd have an emergency fund that could help you cover your basic expenses for three to six months. If you don’t, you’ll need to cut expenses and make any money you receive stretch as far as possible.

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Limit Purchases

Avoid buying non-essentials to free up more cash to put toward your basic expenses. This might involve canceling some streaming services or subscription boxes and avoiding takeout until things get back to normal.

But you can still have fun. Going for walks or renting books or movies from your local library are great free ways to relax and unwind. You could also try hosting a game night with family or friends if you want something a bit more social.

If you’re not sure how to reduce your expenses, try an app like MoLO or another subscription management app. MoLO analyzes your spending patterns to help you find money left over. It’s a great tool for saving or paying down debt, and could also be used to tighten up your budget when the situation calls for it.

Create a Hardship Budget

Creating a hardship budget could help you ensure your dollars go where they're most needed and it may help you identify areas of overspending where you could cut back too. You may already have a budget, but if you don't, that's OK.

To start, take your lists of essential living costs that you made above. Then, make a note of how much money you have coming in each month and make sure it goes to these items first. 

There are several ways you can track your budget, including pen and paper, spreadsheets, or budgeting apps. It ultimately comes down to personal preference. A budgeting app might be your best bet if you're not familiar with spreadsheet formulas and you don't want to do a lot of math.

If you have money left over after paying for your living expenses, you could put this toward your debt payments. If you have nothing left over, a company like Freedom Debt Relief works by helping you regain control of your finances.

Manage Your Debt

You may have debt payments that you need to keep up with. Go ahead and make a list of these too, including your monthly payment and the interest rate on the debt.

You may be able to negotiate a lower interest rate or a more affordable payment plan if you reach out to your creditor and let them know you're experiencing financial hardship. This doesn't change how much you ultimately owe, though. That's what separates financial hardship assistance from other types of debt relief, like debt settlement.

If you’re not sure what to say, try using something like this:

“Hi, my name is [name], and I'm calling about my account number [account number]. I recently [lost my job due to company downsizing, had a medical emergency that resulted in a large bill, had my hours unexpectedly reduced, etc.] This situation has made it difficult for me to keep up with my regular payments. I would like to speak with someone about enrolling in a hardship program." 

Companies generally want to understand your financial picture a little better before accepting you into their hardship program. You may need to provide details about your monthly income and expenses as well as any steps—working overtime, seeking out new employment, cutting other expenses, etc.—that you're taking to try to remedy the situation. They're generally more willing to work with you if you can show that you're being proactive. 

You'll also want documentation of your hardship, whether that's a medical bill or some paperwork from your employer indicating that your hours were cut or you no longer work there. This could help support your claim.

It's also important to be polite and respectful in all your conversations. Creditors don't have to work with you, but many will if you can demonstrate significant hardship. If they do agree to let you enroll in a hardship plan, ask them to send you a copy of this agreement in writing for your records. This way, you both understand the terms.

You have other debt relief options as well, including debt settlement, which is getting your creditors to agree to accept less than the full amount you owe but consider it payment in full. Explore all the solutions available before deciding which is right for you.

Understanding Financial Hardship Assistance Programs

If you're overwhelmed with bills, hardship programs could be just what you need to get your finances back on track. These are programs many companies, including credit card issuers, mortgage lenders, and utilities, offer to customers who are struggling with sudden financial hardships that leave them unable to make their regular payments. They can help you keep your balance current by modifying the terms of your payments so they're more manageable.

Companies usually don't advertise these services because they ideally want everyone to make their full payments as scheduled. But that doesn't mean these programs don't exist. Often, it's as simple as calling the company and inquiring about their hardship programs. You may also have to provide documentation proving your claims about the source of the hardship and details of your monthly finances.

You could speed up the process of reaching an agreement by having documentation at the ready. Make copies of any relevant bills or employment paperwork and put together a monthly statement listing your income and expenses. You should also respond promptly to any requests from your creditor for more information about your situation.

These types of programs are similar to, but not quite the same as debt management plans (DMPs). With a DMP, you work with a third-party credit counseling agency. They negotiate with your creditors to try to secure you lower monthly payments or a lower interest rate and you make all your monthly payments to them each month. Then, they distribute that money to your creditors. With a financial hardship assistance program, you negotiate directly with your creditors yourself.

You may be able to get many of the same changes accomplished, like a lower interest rate or more time to pay, on your own with a hardship assistance program. But sometimes, the creditor adds conditions to your enrollment. 

For example, they may require you to close your credit card with them to participate in the hardship program. You must decide whether this is worth it for you or whether another type of debt relief would suit you better.

How Credit Card Hardship Plans Work

Credit card issuers sometimes offer hardship plans to their customers who are experiencing a major financial setback that leaves them overwhelmed with bills. Hardship programs vary in terms of what they offer and what kind of proof you'll need to show in order to participate.

Some common changes you may be able to negotiate for include:

• Lower interest rates

• Payment pause

• Reduced minimum payments

• Waived fees

Getting started with this type of credit card debt relief is as simple as calling and asking. Don't be put off by the fact that you don't see any mention of a hardship program on the company's website.

You could follow a script similar to the one outlined above or you can try something like:

"Hi, my name is [name] and I'm calling about my credit card account [credit card number]. Recently I've experienced [financial hardship]. Though I've tried to reduce my spending, I'm still having trouble making my minimum payment. I want to speak with someone about enrolling in a hardship program to help me manage my payments going forward."

Again, bear in mind that the credit card issuer will expect some documentation verifying your claims. They can see your recent payment history easily enough, but you'll need to provide additional information about your hardship and your other household expenses.

It's common for credit card issuers to close or freeze your account if you enroll in a hardship program. This is to ensure you don't continue to add to your debt on that card. It may also require that you set up automatic payments. Even if you don't have to do this, it's critical to keep up the payments as scheduled if you want your creditor to hold up its end of the deal.

One other thing to bear in mind is that your balance may continue to accrue interest while you're enrolled in the hardship program. This could result in you paying more in interest overall and taking a longer time to get out of debt than if you'd stuck to your original payment terms. But if that's not an option for you, a financial hardship program could be just what you need.

Impact of Hardship Programs on Your Credit

Enrolling in a financial hardship program doesn't directly help or hurt your credit, but it could have some indirect effects. First, your creditor may place a notice on your credit report indicating that you're enrolled in a hardship program. This will enable other potential creditors who pull your report to see this information. Some lenders won't be bothered by it, but others might be wary of lending money to you if they know you're already experiencing financial difficulties.

If you're enrolling in a credit card hardship program and the creditor requires that you close your account, this could affect your credit score in several ways:

• Closing an account with an outstanding balance raises your credit utilization ratio: This is the ratio between the amount of credit you have available to you and the amount you're using. A lower credit utilization ratio is better for your credit score.

• Closing an older account could reduce your average account age: A longer history managing credit is appealing to lenders. If you're forced to close an old credit account, this could lower your average account age and hurt your score a little.

• Closing an account could reduce your credit mix: Those with the highest credit scores tend to have a mix of installment loans—those with regular monthly payments—and credit cards. If you're forced to close your only credit card, this could reduce your credit mix.

But it's important to remember that payment history is the most important factor in your credit score calculation. Enrolling in a hardship program might be just what you need to stay on top of your payments and keep your account in good standing. Plus, as you pay off the debt, your credit utilization ratio will fall again, assuming you're not charging new debts elsewhere.

Qualifying for Different Types of Hardship Relief

Every creditor will have its own criteria for determining whether you qualify for its hardship relief program. Some common examples of financial hardships that could make you eligible for one of these programs are:

• Job loss

• Medical emergency for yourself or a family member

• Divorce

• Death of a breadwinner

• Natural disaster

In all cases, you'll likely need to provide your creditor with proof of the emergency. This will vary depending on the reason for the emergency. It might include documentation from an employer, a hospital bill, a divorce or death certificate, or documentation from an insurance claim. Gathering any paperwork you have that proves your hardship could help speed the process along.

You may also need to provide information on your monthly income and expenses. That could mean paystubs and copies of your bank and credit card statements.

Your creditor should tell you about what types of documentation you need to submit and how to do this. Once you've provided the necessary paperwork, they will review it and decide whether you qualify. If you do, you and the creditor can negotiate terms until you come up with a mutually beneficial solution. The creditor will likely require you to sign a contract outlining this new agreement.

Where to Turn if You're Having Trouble Keeping Up With Your Basic Expenses During Financial Hardship

If your own resources aren't enough to carry you through a financial hardship, the following programs could help.

Government assistance

Here's a list of government assistance programs designed to help Americans who are struggling financially to cover their basic living expenses:

• 211 helpline: This is a phone helpline that can connect you with community resources to help you cover your basic expenses.

• Supplemental Nutrition Assistance Program (SNAP): The program offers financial help for groceries at authorized retailers (including virtually all major grocery stores).

• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC): This is a food assistance program for women and children aged five or younger.

• Low Income Home Energy Assistance Program (LIHEAP): LIHEAP offers financial help for heating and cooling costs, including weatherproofing. 

• Temporary Assistance for Needy Families (TANF): TANF provides cash assistance for families and those struggling to balance work and childcare.

• Medicaid: Medicaid offers healthcare benefits for low-income families. This isn't to be confused with Medicare, which is for seniors. However, seniors can qualify for Medicaid as well if their income is low enough.

• Social Security: This program offers monthly income for retired workers and their spouses. Surviving family members of deceased workers and disabled workers might also qualify.

• Housing and Urban Development (HUD) Public Housing Program: This is a good option if you're seeking low-cost housing.

Note that many of these programs have strict eligibility criteria, including income limits depending on your state and family size. You usually have to reach out to your state social services agency to verify your eligibility and apply. They may also be able to assist you with the application if you're not sure how to fill them out. This process could take some time, so it's best to act quickly if you want to get your benefits as soon as possible.

Charitable programs

Charities can also provide valuable assistance when you're experiencing financial hardship. Some examples include:

• Feeding America: This is a nationwide network of food banks that could help you get free groceries.

• Salvation Army: The Salvation Army offers several benefits, including food and shelter assistance, job training, and after-school programs for kids.

• United Way: This is a global charity that can connect you to numerous resources, including job training, education programs for kids, and healthcare resources.

• Local food pantries: You may have local food banks in your area that could help you get the groceries you need. Look up the nearest food pantry to you online or try the 211 helpline mentioned above.

• Religious organizations: Many religious organizations have resources to help those who are experiencing financial hardship.

The right resources for you will depend on your unique situation, including the nature and severity of your financial hardship and how long it lasts. But know that help is available. Start with the resources listed above or contact a professional debt settlement company to see if their services are right for you.