Dubai: Whether you’re facing unexpected medical expenses, a job loss, or a major car repair, any such unexpected event can wreak havoc on your money management skills. And what’s a sign your finances have derailed post-crisis? You may start to fall behind on your bills.
“Although falling behind on bills isn't ideal, it can happen in a crisis, and even if you get past the crisis in itself, recovering from it financially isn't something that happens overnight, it may take a while for your finances to start getting back to normal,” said Andrea Barber, an Abu Dhabi-based financial planner.
When circumstances are normal, budgeting really isn't that difficult. For the most part, you can predict your expenses, income, and your day-to-day activities with relative ease. But what happens when an emergency comes up and threatens to ruin everything, including your finances?
Although falling behind on bills isn't ideal, it can happen in a crisis, and even if you get past the crisis in itself, recovering from it financially isn't something that happens overnight
How can you continue to budget when your circumstances turn sour?
“After a crisis, you may even dread getting yet another bill. The first step in post-crisis fiscal recovery is to prioritise expenses and know what bills you do need to pay immediately,” added Barber.
“Many types of debt, including your mortgage, auto loan, and credit cards won't be officially reported as late until they are more than 30 days past due. When prioritising costs, find out if there are bills that are approaching or past that time frame, and if you have enough income to cover all that you owe.”
If you aren't sure that you can pay all your bills, you have a couple of options. Experts agree that the worst thing you can do is to simply stop paying. That will only get you further behind and you risk racking up a mountain of overdraft and late fees, not to mention the potential blow to your credit.
What are your options when struggling with your finances post-crisis?
“One option is to call each of your debt issuers, explain your situation, and ask if you can get an extension or work with them to form a payment plan. You’ll need to go back to your bills and prioritise them with any new information and due dates,” said Dubai-based wealth advisor Mohammad Shaan.
So the first step is to pay the most urgent bills, and if you still are short, you’ll need to find a way to cut your costs. Are there bills you can lower or cut out entirely? Start with the unnecessary expenses. Next, see what necessities you can lower.
“Find ways to shave dirhams off your costs, and more until the crisis has been dealt with. Until your financial situation is under control, make it a point to check in with your money every day,” added Shaan.
“Review all of your bank accounts, credit card balances, bills, budget, and know when your income is available. It's easy to get distracted and disorganized during a crisis, and that will only make your money matters worse. Overdraft or late fees can quickly pile up if you aren't diligent.”
One option is to call each of your debt issuers, explain your situation, and ask if you can get an extension or work with them to form a payment plan
Knowing what costs to avoid is key to getting your budget back on track
In a crisis, you may not know where to turn. By far, the worst resources you can turn to are credit cards or salary loans, cautioned Barber.
“Credit card debt is very easy to get into. Getting out of credit card debt can take you years, especially on the heels of a financial crisis. Using credit cards during an emergency should be a last-resort option when you have no other choice. Prioritize repaying that debt once your crisis has been handled.”
The next step, both Shaan and Barber agree is to create a plan to protect your finances in the future.
“Digging yourself out of a financial hole will take time, but with persistence and smart money moves, it is absolutely possible. Once you are back on your feet, it's time to take action to ensure the next financial crisis doesn't land you back in the same hole,” said Barber.
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Not paying your mortgage payment on time can send your credit score plummeting by 100 points or more. “As lenders can't report your payment as late to the credit bureaus right away, paying your bill one, two, or three weeks late won't hurt your credit score,” said Shaan.
If you're renting an apartment, the next focus is pay this bill on time. “Most landlords probably won't file a notice that quickly. But you don't want to give your landlord any excuse to start this process in motion,” added Shaan.
3. Car payment
“As with your mortgage, there is a grace period before your late car payment starts to affect your credit score. Your auto lender can't officially report your payment as late to the credit bureaus until that payment is way past due. Beware, repossession of a car will hurt you credit score by up to 100 points.”
Digging yourself out of a financial hole will take time, but with persistence and smart money moves, it is absolutely possible
4. Utility bills
Typically, you'll receive plenty of advance warning before your utility providers shut off your services. But you will have to pay these bills eventually to keep them on. “Put these bills at the top of your priorities list,” added Barber.
5. Credit cards
“While your credit card issuer can hit you with a late fee if you miss a payment, and your card's interest rate might then soar, but credit cards don't need to be at the very top of your priorities list if you are struggling with critical bills like your mortgage.”
If you come out of a financial crisis with a lot of debt to be paid off, you'll need to give some thought to the best ways to pay it off. The first step, experts agree, is to start by looking at how much money you can earmark toward debt repayment.
“At the very least, you should have enough money to pay the minimums on your credit card dues, but ideally, you can pay more than that. Next, think about ways to make your debt less expensive and more manageable so you can pay it off faster,” added Barber.
“Interest adds up quicker than you think, so lowering interest on debt means more of your payment goes toward the principal each month, helping you pay the debt off faster. Just keep in mind that refinancing or qualifying for a low-interest rate balance transfer hinges largely on your credit scores.”
If you're really struggling with money, particularly credit card dues, Shaan too suggested that a temporary solution you can take is to pay only the monthly minimum, because it's often such a small amount.
Paying the minimum will keep you current on your credit card bill, and you can always boost your payments back up once you've regained financial footing
“Paying the minimum will keep you current on your credit card bill, and you can always boost your payments back up once you've regained financial footing. However, know that paying only the minimum for a prolonged period will increase charge and delay how long it takes to pay it off,” added Shaan.
Once you've got your budget in order and debt repayment plan in place, rebuilding, or establishing savings is next on the list. “It may seem impossible to save in the middle of a crisis, so if you’re not in a place financially where you’re ready to save, begin to plan for it,” added Barber.
“Whatever your situation may be, these suggestions will help streamline your financial planning and manage your budget to help you stay on top of bills, save money, and work toward your financial goals.”