If you are struggling to pay your bills every month, you might be dealing with a financial hardship. What is financial hardship? The exact definition depends on a number of factors, including the type of debt you are dealing with and your circumstances. Financial hardship typically refers to a situation in which a person cannot keep up with debt payments and bills or if the amount you need to pay each month is more than the amount you earn, due to a circumstance beyond your control.
What Causes a Financial Hardship?
A financial hardship often results from a change in your financial circumstances. Common reasons for a hardship include:
- Loss of a job
- Significant cut in hours or pay
- Divorce or death of a spouse
- Medical illness or injury
Warning Signs of Financial Trouble
Do you know the signs that indicate that your finances are getting out of control? It’s best to address any issues that crop up in your personal finances before they get to the point where you are significantly impacted.
Some common signs that you are headed for financial distress include:
- High balances (or balances beyond your credit limit) on credit cards
- Using credit to pay for everyday expenses when you aren’t able to pay off balances monthly
- High debt to income ratio
- Utilizing high-interest loans or cash advances to make ends meet
- Juggling monthly bills
- Making only minimum payments on balances
- Fear of knowing what you owe (ignorance is not bliss!)
- Late or over the limit fees piling up
- Reduced credit score resulting from high balances and/or late payments
- Inability to qualify for needed credit
Impact of Financial Stress
Financial distress can have devastating effects on individuals and families. When faced with difficult financial situations, it’s not uncommon for the loss of jobs, homes, cars, retirement accounts, personal belongings and savings to result. The stress and fear of financial hardship and the resulting loss can have an emotional impact as well as physical impact.
Common responses to financial stress may include:
- Increased anxiety or depression
- Marital difficulty
- Substance abuse
- Insomnia or difficulty sleeping
- Over- or under-eating
- Physical symptoms such as digestive difficulty, upset stomach, nausea or headaches
How Can I Qualify For Student Loan Financial Hardship?
If you have federal student loans, you might qualify for a special repayment plan when experiencing a financial hardship. For example, you may qualify for pay-as-you-earn, or an income-based repayment plan if you have a partial financial hardship. A partial financial hardship for people interested in the income based repayment plan occurs if the amount they would owe annually on the standard repayment plan is more than 15 percent of the difference between their adjusted gross income and 150 percent of the poverty line in their state, based on the size of their household. For people on the pay-as-you-earn plan, the amount is more than 10 percent.
What Can I Do About Financial Hardship?
If you are facing a financial hardship, you aren’t alone. In fact, surveys indicate that only 40% of Americans have sufficient savings to sustain a financial emergency.
Whatever the cause of your hardship, you have options. Solutions range from changing the repayment plan on your student loans to working with a credit counselor to set up a debt management program.
How Can I Qualify For Credit Card Hardship Programs?
Many credit cards also offer credit card hardship programs that will help you manage your debt. Speaking with a credit counselor is the first step in evaluating what programs you may qualify for. A certified counselor will review your financial situation and make recommendations customized to your needs
These programs typically offer lower interest rates, lower minimum payments, or reduced penalties and fees. You can usually choose between a short-term agreement (6-12 months) or a permanent one that lasts until your card balance is paid.
In addition to debt management, credit card hardship programs or new payment plans, you may be able to get back on your financial feet by evaluating your budget and adjusting your monthly spending. A credit counselor can help you taking a look at your budget and making recommendations.
It’s important to note that a financial hardship is usually something you can’t control and isn’t your fault. Since life can throw you a curve ball from time to time and even the best laid financial plans can get derailed, many lenders and creditors will be willing to work with you, at least to some degree, until your financial hardship is over.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. contact us today for a free financial assessment with one of our certified credit counselors or schedule an appointment that fits into your schedule!