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Natural disasters can uproot lives — and upend stable finances.
If you need to flee your home, you could spend $200 a day or more on lodging, meals and gas. You might miss work and lose wages. And when you return, you could owe a large deductible before insurance covers damage. Even if you have savings, credit card balances can pile up quickly.
Here’s how to respond if a natural disaster lands you in debt.
Tapping can stretch your money and hasten recovery.
“It’s important to not wait,” says Gladys Coward, interim financial wellness expert at GreenPath, a nonprofit credit counseling agency. “Register for assistance as soon as possible.”
Here are a few options to explore:
“Contact your credit card companies,” Coward says. “Try to get ahead of any late payments and see if you qualify for financial assistance.”
You might be able to skip or reduce a payment, avoid late fees or defer a loan. Go into the call with a clear idea of your current budget. Creditors might offer some flexibility, but it’s not likely to last for long, and they’ll want to know when you expect to catch up.
The response will vary by creditor, and even among representatives at the same company. “Some will work with you; some won’t. But persistence is also key,” says Thomas Nitzsche, communications lead at Money Management International. Don’t be afraid to call again. “Often you’re not going to get the answer you want on the first try,” he says.
Make sure you understand the terms of the relief. If you skip a loan payment, for instance, what is your new end date and how much extra interest will you pay? Always keep notes about the date and time of your call and name of the representative, and try to get the deal in writing.
If you’ve missed a payment or two, some credit counselors recommend adding a statement to your credit report explaining that a natural disaster prevented you from making payments.
Gathering aid and staving off creditors gives you some breathing room to assess your new financial reality.
Add up credit card, medical and personal loan debts, then consider whether you can pay them off within five years while covering living expenses. If not, debt repayment might endanger basics such as paying your mortgage and saving for retirement.
If you can meet a five-year timeline:
If you can’t meet a five-year timeline: and consult a bankruptcy attorney; most offer a free initial consultation. Chapter 7 bankruptcy forgives many debts, and you can generally complete it in fewer than six months. Your credit scores will start to rebound soon after. If you don’t qualify, Chapter 13 lasts no longer than five years.
There are also a few simple ways you can get your credit back on track while you’re setting up a long-term plan:
Pay down balances: The amount of your credit limit you use has a big influence on scores. The good news is card issuers report to the credit bureaus every month. As you pay down debt, your score will reflect your progress — especially once you get the balance below 30% of your limit.
Make on-time payments: Unfortunately, a missed payment stays on credit reports for seven years. If you can’t persuade your creditor to stop reporting disaster-related delinquencies, focus on paying bills on time going forward. Payment history has the biggest effect on scores, so piling up positive information will start to offset older negatives.