Financial Distress: Top 5 Causes of Financial Distress

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What is Financial Distress?

Financial distress refers to the inability of people and companies to meet their financial obligations.

People seem to be more and more concerned about money these days. In fact, a survey from Bankrate.com said that 50% of people making between $25,000 and $75,000 tend to “worry a lot” about their finances. With bankruptcies and foreclosures rising at double-digit rates, it’s no wonder many are in financial distress .

But what are the top reasons that cause financial distress? According to information gathered from many other credit counseling agencies across the country, the top five causes are:

Top 5 Causes of Financial Distress

  • Reduced income, same expenses. Some families are seeing two incomes turn into one, or some people are forced into taking lower paying jobs after a layoff. Whatever the reason, expenses have to be adjusted to your new reality. Hoping things will change will just get you into trouble.
  • Little or no savings. If you have no savings, you don‟t have a “safety net” if the unexpected happens. Savings will help you get through a job loss, divorce, or illness. The old adage “pay yourself first” is truer today than ever.
  • Poor money management. Regardless of your situation, the lack of a financial plan and budget can lead to problems. You might be spending hundreds of dollars unnecessarily every month.
  • Medical Expenses. Lack of health insurance, reduced income during illnesses, and costly medical procedures make getting sick a very costly situation.
  • Divorce. Half of married couples do it - some more than once. And there is nothing that will cause financial problems faster than divorce. In fact, the bankruptcy rate for unmarried mothers is three times that of the general population.

The best advice for responding to your needs is: Don’t ignore them or put it off.  This only compounds the problem and makes it harder to address later.  Pick one thing that you can do and get started.  Today.  On lunch break.  Or as soon as you clock out at work.

Our list of steps is adapted from a great source that you can check out here.  They are looking at financial distress from the corporate perspective, but the principles are just as true when the organization you’re looking to keep afloat is your household.  Here’s realistic steps you can take:

      • Assess your new numbers.  How much do you have currently coming in and what’s the most important things to get paid?  Use a notebook or scratch paper and list them from top to bottom.  This gives you an idea of what may go unpaid and will need options or short-term assistance.
      • Communicate with people you owe.  It’s never fun to admit you’re struggling.  But it’s worse to miss out on options just because you didn’t ask.  Many creditors, landlords, and mortgage companies have created payment plans for those struggling.
      • Brainstorm ideas.  This could be options for some temporary income, selling items in the garage you don’t need, or cleaning out the freezer and pantry for a meal plan to eat on what’s stockpiled for a week or two.
      • Seek advice and options.  This is a free way to not only see if there’s short-term answers available for the crisis of the moment, but also maybe find long-term planning and education that help you plan for the future.  It doesn’t have to necessarily be with Apprisen, but we’re always happy to review finances and discuss together.
      • Remember that hardships are often temporary.  While it’s not fun to think about cutting back enjoyable spending, if we think of it as something we’re doing in the short-term for the good of being able to keep other obligations, it’s much more manageable.

 

By understanding the main causes of financial distress, you can start to make plans to address them. Connect with one of our Financial Specialists for free financial analysis, financial guidance, and a custom debt management plan.

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