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How to Get Back On Track After a Financial Setback

August 10, 2022
Ford Favre
Ford Favre

Somewhere along the way, most people experience bumps in their financial journeys. In recent years, the pandemic has been the cause of much turbulence — particularly for those in the Millennial generation.

 How to Get Back On Track After a Financial Setback


According to a study conducted by mybanktracker.com in the first year of the pandemic, about 30% of respondents in the 25-34 age category reported suffering a career setback such as losing a job, missing an advancement, taking a pay cut or not being able to find a job. Most of those respondents reported having to make a financial move such as drawing down an emergency fund, changing their living arrangements, borrowing, getting hardship relief on a loan or tapping into a retirement fund.1


Whether due to a job loss, unexpected medical bills, the burden of student debt, or a life-changing event such as a divorce, most young adults will experience a financial setback at some point. If it happens to you, experts say these seven steps can help you get back on track:


1. Assess your current financial situation and available resources.

Document exactly how much money you have in liquid accounts, including emergency savings. If you have been laid off, investigate Consolidated Omnibus Budget Act (COBRA) extended health insurance coverage, as well as unemployment insurance.


2. Develop a plan for paying off debts.

To start with, if there are some bills you cannot afford to make minimum payments on, contact your creditors to work through payment options. You should make these phone calls before your bills end up in collection, because once there, your options are limited.

Two out of five (40%) millennials say credit card debt is their greatest financial setback, according to a survey conducted by Affirm, a financing company. Two debt repayment strategies to consider are a credit card balance transfer, where you move the balance of one or more credit cards onto a new card that offers a lower interest rate; and a personal loan for debt consolidation that offers a lower, fixed rate. A third strategy, which can help address all kinds of debt issues, is seeking assistance from a nonprofit credit counseling agency.2

A credit counseling agency, at no or a low cost, can help you create a budget and even negotiate with creditors on your behalf to lower your interest rates and waive late fees. You can search for accredited nonprofit credit counseling agencies on the Department of Justice website.


3. Identify ways to boost your income.

In an Ameriprise Financial study, more than a quarter of respondents said working more or longer helped them out of their financial troubles. To address debt issues, consider getting a second job or “side hustle.” Some possibilities include childcare, consulting, freelance writing, virtual assistant, cleaning, graphic design and landscaping.3


4. Establish and adhere to a budget.

Half of the Ameriprise Financial study respondents said re-evaluating their spending was a crucial step toward financial recovery, and 37% said they changed their saving behaviors to get back on track. Personal finance experts say the best way to be sure you execute on revised spending and saving goals is to create and stick to a budget.

When formulating a budget, split expenses into “needs” and “wants.” Eliminate as many of the “wants” items in the budget as it takes for you to live on your current income and/or savings. To get started, work from bank and credit card statements and list your expenses from the past six months on a spreadsheet or key them into a budgeting app.


5. Build an emergency savings fund.

Your budget should call for you to put aside money on a regular basis to create an emergency fund. Experts typically suggest the fund should include funds to cover at least six months’ worth of living expenses.


6. Be patient.

Nearly two-thirds of the Ameriprise study respondents said it took them one to five years to get their finances back on track after a setback.


7. Learn from your setback.

Experiencing a financial bump in the road is like many challenging episodes: It hurts but can teach important lessons. According to Jane Barratt, a personal finance expert who offers online educational courses on LinkedIn Learning, “a financial setback, as painful as it may be, can be a great time to build your money muscles and form new habits that will bring better outcomes in the long term.”4

1 “Survey: COVID-19’s Financial Effect on Millennials,” mybanktracker.com, Nov. 13, 2020. https://www.mybanktracker.com/open-data/surveys/covid-19-financial-impact-millennials-312802

2 “40% of millennials say credit card debt is their biggest financial setback, survey finds,” Fox Business, Jan. 27, 2022. https://www.foxbusiness.com/personal-finance/millennials-how-to-pay-off-credit-card-debt

3 “Most Have Experienced a Financial Setback at Some Point – Here are 5 Ways to Recover,” Forbes, June 17, 2020. https://www.forbes.com/sites/lizfrazierpeck/2020/06/17/most-have-experienced-a-financial-setback-at-some-pointhere-are-5-ways-to-recover/?sh=62c6a5452841

4 https://www.linkedin.com/learning/recovering-from-a-financial-setback