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What is financial hardship and can it impact your credit rating?

Money may not buy happiness, but it does provide security. The impact of hardship can be a harsh reality for many families across the globe. It’s an unsettling feeling of insecurity and responsibility that follows you everywhere. But what is financial hardship? And how do we cope with its looming presence? This article will explore these questions as well as providing practical tips on overcoming this difficult challenge.

Anyone can find themselves in financial hardship at some point in their lives. Whatever the cause of one’s financial difficulty, there’s no denying that financial hardship creates immense pressures on individuals and households alike.

The effects of financial hardship are far reaching. Being unable to make ends meet can also lead to major lifestyle changes, putting many Australian families in times of stress. All of these difficulties combined create a sense of hopelessness that makes it feel impossible to break out of the cycle. The good news is, however, that with proper planning and dedication, it is possible to overcome this difficult challenge – one step at a time.

Definition of financial hardship

Financial hardship is a situation where one’s finances are stretched to the point of not being able to meet minimum payment financial obligations (mortgage, credit cards, household bills, etc.).

For those who experience difficulty making loan repayments, they may need to submit a written application for hardship outlining their circumstances in what may be referred to as a ‘hardship variation letter’. This document explains why the applicant is unable to make regular repayments and seeks assistance from lenders such as lower interest rates or reduced payments. Financial institutions usually consider applications for payment plans based on your credit report when assessing whether to approve a request for financial hardship assistance.

Alternative options may include debt consolidation or refinancing loans (if appropriate). An experienced advisor or financial counsellor may be able to help evaluate which option may best meet your needs and take steps towards alleviating the burden.

Causes of financial hardship

Financial hardship can be a massive mountain to climb. It can come from many sources and affect people in different ways. It can be caused by a wide range of factors, such as unemployment, divorce, illness or injury, insolvency, and numerous other factors. The effects of financial hardship may vary depending on an individual’s situation.

Consequences of financial hardship

The consequences of making a financial hardship arrangement with creditors can be far-reaching; from health-related problems such as negative effects to one’s mental health to financial. Applying for financial hardship can have negative effects on your credit rating, meaning that you may find it harder to secure loans or get approved for mortgages in the future.

Even writing a request for hardship variation letter to explain your situation may be quite confronting. Those dealing with financial difficulty may feel as though they’re unable to qualify for any kind of loan modification or repayment plan.

Signs of financial hardship

Financial hardship is a real issue and will likely affect many Australian households in 2023, due to the rising interest rates and cost of living inflation. Knowing what signs to look out for could help those at risk get assistance before their situation becomes dire. Other tell-tale indications include not being able to keep up with normal repayments on credit cards, receiving a default notice from creditors, and taking longer than usual to pay bills.

what is financial hardship and can it impact your credit rating?

If you’re struggling to make ends meet, start by looking into options such as making a repayment arrangement with your creditor or applying for income support payments. For a small fee, MyBudget can make informal debt agreements on our clients’ behalf with payment terms that are more affordable based on the budget that we’ve created for them.

MyBudget has helped over 130,000 Australians live their life free from money worries. We do this through budgeting and assisting our clients pay their way out of debt without needing new loans or credit cards.

Strategies for eliminating/easing financial hardship

If you’re feeling overwhelmed by financial hardship, there is hope: MyBudget has been implementing strategies for eliminating financial hardship across Australia for over 20 years. We help our clients create a personal budget that allows them to plan ahead, budget without compromises, prepare for the unexpected and reach their financial goals.

Create a budget

Creating a budget is what we do best and you can download our free personal budget template in order to get started. When filling in a personal budget, it’s important to be completely honest with yourself; look back at your recent bank statements and note down how much you spend on groceries, petrol, mortgage/rent, utility bills, credit card bills, loans, council rates – everything. A budget is only accurate as you make it.

Doing this will provide you with full visibility over your financial situation, so that you’re able to make much more calculated decisions.

Reduce expenses where possible

Once you’ve created your budget, you may notice a few discretionary expenses that aren’t as necessary as you’d initially expected. If you also compare your regular loan repayments with what is the required minimum monthly payment amount, you may find that you’re paying too much to one creditor and not enough on the other.

Earn extra income

This may seem like a silly strategy to list, but there are many ways to earn extra income, even if it’s just temporary while you’re trying to pay down some hard-hitting debts. Having a discussion with your workplace to review your salary if it hasn’t been looked at recently may be the answer, but if you’re under financial hardship due to a loss of job, then picking up some freelance work as side hustles could be a way of keeping up a flow of income.

No matter which route(s) you take towards alleviating your burden of debt and financial distress, know that help is out there—for a free appointment, you can call MyBudget on 1300 300 922 or enquire online.

Benefits of financial literacy in times of difficulty

Financial literacy is essential in times of difficulty. It can help you understand your options and make decisions that best suit your situation. Knowing how to manage credit reports, home loans, repayment history, late payments and hardship notices can save time and money, improve credit ratings and avoid default fees.

Having knowledge about financial matters gives us the power to act responsibly when faced with economic challenges. We can be proactive instead of passive by taking action on our debts without being overwhelmed or making costly mistakes. The more we understand various elements of finance such as budgeting, savings plans, debt consolidation and loan refinancing, the better equipped we are to handle a financial crisis.

Our ability to navigate difficult times depends largely on our understanding of personal finances. By having this insight into different aspects of money management, it enables us to take control over our future during an uncertain period. This self-awareness allows us to be prepared for any eventuality while providing peace of mind knowing that responsible steps have been taken towards long term security. With sound advice from experts coupled with financial literacy skillsets anyone can secure their future regardless of current circumstances.

Prioritising bills during financial hardship

Financial hardship can be a difficult and stressful time for anyone. It requires careful planning to ensure bills are paid on time and financial strain is alleviated. Prioritising bills during this period can help to maintain a good credit file and credit rating and avoid debt from accumulating.

Determining which bills take priority depends largely on individual circumstances, however you may need to consider the consequences of missing payments on each bill. For example, necessities such as groceries and mortgage/rent for a roof over your head could be classified as top priorities, followed by required/automated expenses such as any insurances and direct debits, and lastly, discretionary expenses.

Steps to take to avoid financial hardship

“An ounce of prevention is worth a pound of cure,” the old adage goes, and it couldn’t be truer when it comes to avoiding financial hardship. To stay ahead of money troubles, there are steps you can take to prevent it from becoming an issue. If you’re worried that your financial situation is worsening, a budget can help to create visibility over your situation so that you can see exactly what comes in and out of your account, as well as predicting what is to come in the days, weeks and months to come ahead.

How to rebuild credit after financial hardship

You may have experienced some sort of financial hardship in your lifetime – maybe you had trouble paying off credit card debt or are behind on mortgage payments. Whatever the reason may be, rebuilding your credit after such a distressing situation is certainly no easy task.

As previously alluded to, in order to repair your credit rating, it’s important to create a budget to ensure your payments are either running on time or you have an idea of the steps to take in order to devise a plan. In a free appointment, the team at MyBudget may be able to create a budget plan to help you get out of debt and start working towards your future goals.

No matter what route you take when attempting to rebuild credit after a hardship period, patience and attentiveness are key ingredients to success! Be sure to read up on any documents related to loans and make inquiries where needed. With proper knowledge and preparation, rebounding from even extreme cases of financial hardship becomes possible!

Short-term solutions during financial hardship

Financial hardship can be a daunting and overwhelming experience. Speaking about long-term solutions is important for long-term success, but that may not help you in the here and now. It’s important to remember that there are short-term solutions available in the meantime, while you work towards rebuilding your credit. Contacting your creditors for temporary relief can help to provide time and stability.

The cause of financial difficulties can come about due to multiple reasons: relationship breakdown, job loss, medical issues (with proof from acquiring a medical certificate), natural disasters, etc. By contacting your credit provider and explaining the situation, they might be able to offer tailored assistance based on what’s happening in your life. Additionally, seeking professional financial advice can provide valuable insight into finding strategies that suit your individual needs. Eligibility requirements and eligibility criteria may vary depending on your situation.

Looking at all options helps give clarity during difficult times. Many people find comfort in understanding their different types of financial assistance available, allowing them to make informed decisions about how best to move forward.

Common financial mistakes to avoid during financial difficulties

The first mistake may be not seeking professional help when things become tough. Trying to handle it alone can result in costly errors with long-term implications – like ignoring legal action from creditors.

Another blunder many folks commit is neglecting their relationships while attempting to get back on track financially. Splitting up with a partner over money matters can create further stress as well as extra costs due to legal fees, making it more difficult than ever to manage expenses effectively. It can also lead you down a spiral; our loved ones are important to us and being around them during difficult times is crucial to one’s mental health and wellbeing.

When facing financial hardship, consult experienced professionals before making any decisions about your future finances and seek support from trusted relationships too!

Frequently asked questions

How can I access financial assistance quickly?

It’s not easy facing financial hardship. But, there are ways you can access assistance quickly. Here is a list of four ideas:

1. Reach out to family and friends

It is understandable if you’re worried about the sensitive topic of money influencing your personal relationships but if they’re able to help, it could be the fastest way to accessing emergency funds.

2. Not-for-profit organisational support

Try looking into non-profit organisations in your area who offer aid programs specifically designed for people with limited resources. And while some may not be able to offer monetary assistance, they may be able to help in other areas which could help to reduce your expenses.

4. Offer to work overtime or get a side hustle

As previously mentioned in this article, temporarily working more hours or doing work on the side could help you get back on track, even if it’s just temporary. You could consider doing Uber work for a little while or freelance on a specific skill you may have. Websites like Fiverr and Upwork can be a great way to find work like this.

Doing research on all these options takes time but can make a big difference when facing an unexpected expense or loss of income. You’ll need to look up requirements and paperwork needed for each option, so plan ahead as best you can. It’s important to stay organised and keep track of what documents were sent where, along with due dates and other details relevant.

A couple sitting at a desk discussing Non-Confirming Loans

It’s important to remember that you don’t have to go through this alone; seek advice from trusted loved ones or professionals who may know more about the process than you do. They could point you in the right direction faster than trying to figure things out by yourself. Ask around and take advantage of available resources – sometimes all it takes is having someone guide you along the way!

What are some common mistakes to avoid during financial difficulty?

Money trouble can be a real nightmare. Like a heavy fog, it creeps in slowly and envelops us before we know what is happening. Financial hardship can seem like an insurmountable obstacle, however there are ways to navigate through the darkness with confidence. Avoiding common mistakes may help you find your way back on track faster:

1. Don’t bury your head in the sand and ignore warning signs

When bills start piling up or payments become too difficult to make, taking action immediately can prevent the issue from getting worse. Address any money issues swiftly instead of waiting for them to snowball out of control.

2. Resist taking out more debt

Finding yourself deeper in debt after taking out more credit won’t get you ahead financially – it will only cause further distress down the line as the inevitable payments catch up to you. You can see taking out more debt as a band-aid fix; it may help for a short period of time, but it won’t solve the root of the issue. Rather than going into further debt, consider other options such as downsizing expenses or negotiating payment plans with creditors.

3. Don’t go about this process alone!

There’s nothing wrong with seeking help and insight when navigating unfamiliar waters. MyBudget specialises in helping people get out of debt and start working towards achieving their financial goals.

What is the best way to rebuild credit after financial hardship?

With the stress that comes with the rising cost of living, it’s not uncommon for Australians to have a low credit score, with many due to financial hardship. Rebuilding credit after such difficulties can be difficult but not impossible. Here are some ways on how you may be able to get back on track:

1. Make all payments on time

This is the most important part of rebuilding credit since payment history. With payment automation, the MyBudget system allows you to schedule your recurring bills ahead of time; out of sight, out of mind.

2. Reduce debt levels by paying off what you owe as quickly as possible

Showing that you can pay down your debt quickly and efficiently can help to improve your credit score. If you’re in the process of seeking financial advice due to hardship, this may be difficult, so consider focusing on getting payments on time first, and then once you’re in a better position, you can work on paying down your debt quicker.

3. Monitor activity regularly

Make sure to check your report consistently for signs of fraud or incorrect information which might affect your score negatively. You can also use an online tool like Credit Karma or Experian Boost to analyse changes in real-time and dispute any issues found.

Rebuilding your credit report takes patience and discipline but following these steps should help those recovering from financial hardship get back on their feet again soon enough. It’s essential to remember that the best way forward involves creating good habits and responsible spending going forward; without this no amount of ‘quick fixes’ will be able to restore a person’s rating effectively in the long run.

Are there any long-term solutions for dealing with financial hardship?

Do you ever feel like financial hardship is too overwhelming to overcome? Struggling with money can be a difficult and complex issue that affects many aspects of your life. While there are short-term solutions, what about long-term ones?

The good news is that it’s possible to cope in the long run. To get started, consider creating a budget to ensure your payments are on time and that every dollar has a job. This will help you to prioritise expenses, identify areas where you could make cuts and track your progress over time. You may also want to look into ways to increase your income through side hustles or part-time jobs if necessary.

It may also be helpful to create an emergency fund for unexpected costs such as medical bills or car repairs. Setting aside even small amounts each month can add up quickly and provide additional security when times are tough.

Above all else, don’t give up hope. With the right strategies in place and some dedication, it’s possible to weather the storm of financial hardship and come back stronger than before.

Conclusion

It can be difficult to ask for help during financial hardship, but it is often necessary. Many people make mistakes that further complicate their situation, such as taking out payday loans or ignoring debt collectors. To ensure a successful recovery after financial difficulty, it’s great to create a plan and stick to it.

Financial hardship can have serious implications, so going down this route is not one to be taken lightly. However, if push comes to shove, applying for financial hardship and seeking temporary relief could give you the flexibility to stabilise your budget.

MyBudget has helped over 130,000 Australians live their life free from money worries. We’ve helped many with their personal finances and determining whether a request for hardship is necessary or not. If you’re currently feeling the pinch and the signs are becoming increasingly noticeable, give us a call on 1300 300 922 or enquire online and book yourself in for a FREE appointment.

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This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.