What to do when you have a financial emergency

By Citizens Staff

We understand that many people are worried about their current financial situation and are trying to figure out what they can do to improve it. Sometimes it's not possible to be as prepared as we’d like — especially during events that interrupt our journeys like the current coronavirus epidemic.

Citizens Bank is working hard to help you and the communities we serve get through these unprecedented times. Be assured that help is available and that there are people willing and ready to listen and offer advice.

Here are a few steps you can take right now to help you start feeling more confident about your financial circumstances.

One of the most important things you can do to help yourself is to try not to panic. That might seem easier said than done, but instead, try to focus on steps you can take to solve the problem.

A good first step is to lay everything out and take an objective look at your personal finances. Make a summary of all the basics, like your income, savings accounts, retirement accounts, ongoing expenses, and any liabilities or debts (medical expenses, student loans, etc.). Once you have these clearly organized, you can start working toward developing a plan.

Setting up a budget will help you understand what's flowing in and out; from there, you can start looking at ways to cut costs. To make things easier, Citizens Bank has a monthly budgeting calculator you can use to input your bills and expenses to gauge how much you're spending and on what.

Now that you have your monthly budget, you'll be better able to prioritize your expenses. Think about what's really essential and what needs to be paid right away. What are some things that you can do without? Are there services or subscriptions that you can cancel or reduce?

Once you determine which expenses can be eliminated, you can go back and adjust your budget to have enough money on hand. Break down larger categories, like food, and find specific ways to lower your costs or substitute less expensive options. Think about what it will take to get you to a manageable place.

It's not easy to ask for help. You'd be surprised, however, to learn how many businesses — including banks and credit card companies — are more than willing to help out, especially during uncertain times. The key is to contact these companies as soon as possible; don’t wait for them to reach out to you.

Some banks and financial institutions are offering payment assistance programs that could help refinance a loan or consolidate debts or payments. Other companies, like utilities, phone providers, and even the IRS have come up with alternative payment options such as installment plans or deferred monthly payments to help ease your financial burden.

Asking family or friends for help could be a viable alternative to taking on high-interest debt or other borrowing arrangements that might hurt you in the long term. The people closest to you may be in a position to help you make ends meet — and they’d rather support you than see you struggle.

Always take care of your personal relationships and set yourself up for success when borrowing money from a friend or family member. You can help the conversation go more smoothly by being prepared with a detailed repayment plan and offering a reasonable interest rate. Be sure to put everything in writing so everyone understands what’s expected of them and feels good about it.

Through some employers’ benefits portals, you might find paycheck advances, emergency loans, or other financial assistance options or tools. These short-term loans and advances could have with lower interest rates.  Often these solutions use your employment and income data instead of credit history to underwrite the loans. This is a good option to explore if possible. Also, check with your bank about personal loan options. It can be a much smarter option than taking on high-interest credit card debt.

Tapping into retirement accounts, such as a 401(k) or IRA account, is generally not recommended but sometimes necessary. Keep in mind that early withdrawals from these accounts run the risk of prematurely depleting your retirement nest eggs and potentially increase your income tax liabilities. Generally, distributions from retirement accounts are considered taxable income and subjected to ordinary income taxes, plus a 10% early withdrawal penalty if you're under 59 ½. However, with the CARES Act signed into law last month, some retirement accounts may allow qualified individuals* (see definition below) for coronavirus-related distributions up to $100,000 without being subject to the 10% penalty. If the funds are put back in the account within three years, there will not be any tax liability as well. Consult your tax advisor to see if this is an option for you.

Every situation is different, so make sure you understand all the details first and contact your bank or financial advisor.

It’s sometimes possible to borrow from a 401(k) or 403(b) account in the form of a loan. Current rules state that a plan participant can only borrow up to 50% of the account vested balance and up to the maximum loan amount (less any outstanding loan balance). Be aware these types of loans generally must be paid back within five years. Also, you may be required to pay back the full amount if you lose your job. But under the CARES Act, the limit for retirement plan loans has been temporarily increased from $50,000 to $100,000 for qualified individuals and allowing these borrowers to take a loan equal to 100% of their vested balance up to $100,000.

* Qualified individuals are defined by the U.S. Treasury Secretary as those who:

• Have been diagnosed with COVID-19, or have a spouse or dependent diagnosed with COVID-19
• Are experiencing adverse financial consequences as a result of being quarantined, furloughed, laid-off, reduced work hours, inability to work due to lack of child care because of COVID-19, the closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors

There are many federal and state government programs that provide support in financially difficult times, such as unemployment benefits or healthcare coverage. Each state is different, so check with your state to find out what's available and what you might be eligible for. To find information about unemployment insurance, you can visit the Department of Labor’s website for your state.

The IRS has created a special site to help taxpayers, businesses, and others affected by the coronavirus with information about tax relief and tax filing extensions.

Perhaps the most important thing you can do is to take the time to seek out sound financial advice. Short-term financial decisions can have long-term effects, so it's critical to think clearly and plan as best as you can.  And, in time, you may want to think about creating an emergency fund for the future.

Our colleagues are ready and available to listen and offer guidance during this difficult time. If you’ve been impacted by the coronavirus pandemic and are facing financial hardship, please contact us to find how we can help.

Do you have questions about how the coronavirus pandemic is impacting your banking services? We’re ready to help. Check out our COVID-19 Resource Center for regularly updated news to stay informed and find resources for the support you need.