personal finance  |  july 15, 2020

7 Steps to Take When Facing Financial Hardship

When you are struggling with financial hardship, it’s difficult to plan for the future if you don’t have confidence in your plans for today.


Key Points

  • Stretch short-term available cash.

  • Discuss payment options with creditors. Many businesses are offering flexible payment options.

  • Explore low interest rate borrowing options like home equity line of credit or refinancing a mortgage.

  • Carefully consider any distributions from retirement accounts. For example, your employer may allow larger loans from your plan with more time to repay.

It’s difficult to focus on the future if you don’t have confidence in your plans for today. If you or someone you know is struggling with financial hardship, we have some suggestions that can help you get through this trying time.

  1. Stretch short-term available cash. If you are due any money in the short term, like a stimulus check or a tax refund, use it to pay current expenses or build up an emergency fund.

  2. Discuss payment options with creditors. The good news is that many companies are offering flexible payment options on mortgage or rent, credit cards, car loans, and utilities. Also, if you have a federal student loan, the Coronavirus Aid, Relief, and Economic Security (CARES) Act automatically suspends borrowers’ payments, interest-free, until September 30, 2020.

  3. Review expenses. Check your subscriptions for streaming services and other types of memberships that are recurring charges. You may be able to temporarily pause these items or decide to cancel if you aren’t using them. Review auto insurance policies to see if changing your deductible could save you money. Your premium may also decrease if you are driving less due to changes in your work situation. Your spending habits have probably changed due to the coronavirus crisis, which provides a good opportunity to evaluate your priorities.

  4. Take advantage of available discounts. Many businesses offer discounts for seniors and military, but some have extended that courtesy to first responders and frontline workers. Other businesses simply offer discounts to anyone who says they need help. Ask at point of purchase if this is available.

  5. Explore low interest rate borrowing options. If you are employed and can qualify, a home equity line of credit (HELOC) can provide access to cash. The interest rates on HELOCs are usually much lower than credit cards. Also, with low interest rates, now could be a good time to refinance your home and lower your monthly payment.

  6. Carefully weigh the pros and cons of retirement account loans and withdrawals. The CARES Act may make it easier for you to access money in IRAs and workplace retirement plans without penalty this year. Those provisions for loans and withdrawals apply if you, your spouse, or a dependent is diagnosed with COVID-19 (the disease caused by the coronavirus) by a test approved by the CDC or if you face adverse financial consequences related to the crisis such as furlough, layoff, or reduced work hours. For example, your employer may choose to allow larger loans from your plan than previously allowed, with more time to pay them back. That said, if you leave your employer and are unable to repay the loan, it will count as a distribution that may be subject to income tax and possibly a 10% excise tax penalty. Make sure you understand all of the details before tapping into money intended for the long term.

  7. Remember, it’s OK to ask for help. Asking for help is a tough step to take, especially if you’ve never been in a situation where you have had trouble making ends meet.

If you need to take a break from saving until your current financial situation settles, make sure you make a point to revisit the decision in the future. In the short term, it may make sense to contribute less to retirement accounts and have more cash on hand in a savings, checking, or money market account. Ideally, though, still contribute enough to receive any company match. By taking the right steps to get through a period of hardship, you can get back on track when your situation improves.

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.



Next Steps

  • Keep yourself educated on the markets, investments, and financial planning.

  • Contact a Financial Consultant at 1-800-401-1819.