The unexpected can cause a financial crisis in any household. And, unfortunately, they tend to come on quick. Cue a natural disaster, like a hurricane, or widespread economic downturn, like the market crash in 2008, or a government shutdown. Even a sudden job loss or an illness—any of these could lead to a disruption in your household income.
If you’re going through a financial crisis, it’s important to know you’re not alone. Depending on the type of financial crisis, non-profit organizations and companies may provide resources. Whether your situation is personal or widespread, here’s how you can prepare for (and get through) a financial emergency.
Find those willing to help.
During the early 2019 partial U.S. government shutdown, when hundreds of thousands of government employees worked without pay for weeks, several companies announced customer assistance programs to those affected. Similarly, companies and non-profits have coupled together to provide resources during natural disasters and more.
Customer assistance programs may include waived late and transaction fees, complementary meals, helpful tips, and other donations to those affected. At Ally, we provided meals to TSA agents at both Charlotte Douglas International and Detroit Metro airports while also expanding assistance programs to customers affected by the partial U.S. government shutdown in early 2019.
Dana Burrell (pictured left), TSA supervisor at Charlotte Douglas International Airport, told us she was amazed at the outpouring of support not only from companies like Ally but also from everyday interactions and those willing to step up to help during the partial U.S. government shutdown.
So how can you deal with the financial stress that comes with money emergencies?
There’s no reason to go it alone, particularly if it’s an issue affecting many people. Visit your bank website or call customer service. Discuss your options with charitable organizations in your community and look to companies in your area who may provide resources. Whether it’s a complementary meal or waived late fee, a little bit of help can go a long way in a financial crisis.
Prepare with an emergency fund.
An emergency fund is cash you set aside in a savings account only for unexpected expenses like a sudden job loss. The idea is simple. You’ll have the money there, so you can pay for those just-in-case moments. But exactly how much do you need? See the chart below to find out.
To figure out an emergency fund goal that’s more specific to your unique financial situation, plug your numbers into our emergency savings account calculator.
Keep in mind, you need to keep your savings in the right spot. A deposit account that earns interest and is liquid (aka savings account) instead of a certificate of deposit or an investment account is a good option.
It’s simple. Your emergency savings needs to be accessible. Keeping your emergency fund in a savings account means you don’t have to jump through any extra hoops to get cash when you need it most.
While building an emergency fund is an important way to get through a financial crisis, according to Bankrate, only 39 percent of Americans have enough cash on hand to cover a $1,000 emergency. If you haven’t started building your cushion yet, there’s no time to lose.
If you don’t have an emergency fund and are currently going through a financial emergency, the next few tips below can help you weather out the storm.
Know your potential withdrawal penalties.
When a financial crisis hits, and you need money but don’t have an emergency fund, your natural inclination might be to use your credit card or withdraw money from a certificate of deposit (CD) to pay your mortgage or buy groceries. Before you do, take the following into consideration.
CD penalties to consider:
- If you decide to close a CD before its maturity date, you will probably be charged a certain amount of interest depending on the terms of your CD.
- Terms vary by bank, but typically involve getting docked a certain amount of interest accrued—whether it’s three months’ worth for a short-term CD or as many as 12 months’ worth for a longer term. And in some cases, if the accrued interest is less than the penalty amount, the difference could be deducted from the CD’s balance, causing a loss.
- Some banks are willing to waive fees during hard money times. Your best bet is to call and ask.
Understand potential damage to your credit score.
You might consider skipping a credit card payment to find money to pay for more urgent bills. Here’s the lowdown on any potential damage to your credit score for missing a payment.
How quickly credit card companies report missed payments varies, but credit agencies don’t consider a payment late until it is 30 days past due—and in some cases as many as 60. Your credit card issuer may still charge you late fees, but a missed payment shouldn’t affect your credit score unless you’re more than 30 days late with your payment.
Keep in mind, some financial institutions are willing to waive late fees. All you have to do is call and ask.
Discuss housing matters.
If your difficult financial situation is temporary, contact your mortgage lender and ask about forbearance. Some lenders are willing to reduce or even suspend your mortgage payments for a short amount of time before you can resume making regular ones. Utility companies or landlords might do the same—again, all you have to do is call and ask.
Have a dire financial circumstance? Other mortgage options include loan modification or debt settlement, but these could have negative effects on your credit history. So be sure to consult with your lender before going down that road.
Look into unemployment.
Unemployment programs vary by state, so the most important step is to file a claim in the state where you worked—not where you live—and know you might need to do it in person. When you file, be prepared to provide information such as proof of your address and the dates you worked for your former employer. (You might be asked for additional information.)
Be aware, however, that it typically takes two to three weeks after you submit your claim to receive your first check, so it (literally) pays to be quick in applying.
In some instances, if you receive unemployment benefits, you may have to repay them once you’re receiving your regular paycheck again. So be sure to read all the fine print when applying for benefits.
Will your financial institution have your back when times get tough?
The short answer? It depends. It’s best to contact your financial institution directly and explain your situation to find out. Ideally, they will provide you with information regarding your accounts and options to help you get through tough times.
At Ally, we do provide aid and resources for customers who have been affected by a financial crisis, including those affected by the partial U.S. government shutdown. Based on your needs, expanded benefits may include:
- Refunds of transaction fees
- Refunds of non-sufficient funds fees
- CD early withdrawal penalty waivers
- Expedited check fee waivers
- Wire fee waivers
- Late charge waivers
- Payment extensions
“Our hearts go out to any individual experiencing financial challenges and, given the extended duration of the partial shutdown, we want to assist our customers who are burdened by this as best as we can,” says Diane Morais, president of consumer and commercial banking products at Ally Bank. “Our focus is on truly being an ally in these uncertain times and providing relief that, if needed, can help.”