6 Ways To Completely Turn Around Your Finances After Hitting Rock Bottom
Written by
Vance Cariaga
Edited by
Gary Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Hitting financial rock bottom is more common that you might think. As recently as 2019, there were more than 750,000 non-business bankruptcy filings in the U.S., according to Debt.org. That figure had been chopped in half by 2022 — mainly because of COVID-era debt relief efforts — but bankruptcies have been on the rise since then.
Meanwhile, a large percentage of Americans are just one missed paycheck or unexpected expense away from financial hardship. Nearly half (49%) of U.S. adults surveyed by LendingTree said they wouldn’t be able to cover a $1,000 emergency using only cash or their bank accounts.
Separate research cited by CNBC found that one-third of American consumers with annual incomes between $50,000 and $100,000 have enough emergency fund savings to cover at least six months’ worth of living expenses — which means two-thirds don’t.
If you find yourself hitting rock bottom financially, the first thing you need to do is not panic. Next, develop a strategy to dig your way out of it. Here are six ways to turn around your finances after hitting rock bottom.
Don’t Dig Any Deeper
Whether your financial problems are due to overspending, too much debt or something else, you need to stop the hole from getting any bigger.
If you are in debt, don’t add to it. If you are spending more than you can afford, figure out a way to stop that as well. Adopting the right habits immediately will help you move forward to the next steps.
Make a Debt Repayment Plan
Begin by figuring out how much debt you have, who your creditors are, how much interest you are paying, and which debts you are behind on. If you have the financial wherewithal to pay the debts on your own, one strategy is to pay the high-interest debts first and then work your way to the lower-interest debts.
If the debt load is unmanageable, you can negotiate with your creditors to get reduced interest rates or temporary payment plans, or sign up for a debt consolidation program that lets you pay all your debts in a single monthly installment.
Research Government Assistance Programs
Government assistance can serve as a stop-gap measure to help get you back on your feet until you return to a position of financial strength. Federal, state and local programs are available to help you pay for groceries, rent, utility bills, medical care, childcare and other expenses.
Visit Benefits.gov to find out what kinds of programs are available.
Create a Realistic Budget
Many consumers follow the 50/30/20 budget rule, which means allocating 50% of your budget to essentials such as housing and groceries, 30% to non-essential “wants” like dining out or gym memberships, and 20% to savings. But if you are in a big financial hole, you might need to tweak the “30%” part until you dig your way out of it.
This means putting that money into lowering your debt and paying off other bills instead of spending it on non-essentials.
Make Savings a Habit
Although it might seem impossible to save money when you are under a pile of bills, you should still prioritize putting some money into savings every month or pay period. Even if it’s a small amount like 5% of your budget, developing the savings habit and earning interest every month will improve your finances and your mindset.
Open a high-yield savings account to get the best return on your money. Your initial savings can go toward building an emergency fund. After that, you can start contributing to savings for big purchases and retirement.
Earn Extra Money
Cutting expenses will only do so much when you are in a deep financial hole. You also need to figure out a way to boost your income.
Luckily, there are numerous side gigs and part-time jobs that let you earn decent money outside of your full-time job. Use the extra money to pay down debt, build savings and get current on all of your bills.
More From GOBankingRates
