If you are struggling to pay your bills every month, you might wonder if you are dealing with a financial hardship. What is financial hardship? The exact definition depends on a number of factors, including the type of debt you are dealing with and your circumstances.
Generally, though, you can assume that you have a hardship if the amount you need to pay each month is more than the amount you earn, due to an extenuating circumstance.
What Can Cause a Hardship
Typically, to have a financial hardship, you need to have a change in your financial circumstances. A common reason for a hardship is if a person loses his or her job, or if a person receives a significant pay cut. You might have a hardship if your employer suddenly, and against your wishes, reduces the number of hours you can work each week and you get paid on an hourly basis.
In some cases, a personal situation can lead to a financial hardship. For example, if you were married and your spouse was the primary earner, then you got divorced, you may face a hardship until you can find a job or until your former spouse starts paying alimony.
The same is true if the primary earner in your family becomes sick or injured and isn’t able to work anymore. In many cases, a hardship occurs because of something that you can’t control.
Financial Hardships and Student Loans
In some cases, the answer to “what is financial hardship?” is very specific. For example, if you have a number of federal student loans, you might qualify for a special repayment plan-- for example, pay-as-you-earn, or an income-based repayment plan if you have a partial financial hardship. A partial financial hardship for people interested in the income based repayment plan occurs if the amount they would owe annually on the standard repayment plan is more than 15 percent of the difference between their adjusted gross income and 150 percent of the poverty line in their state, based on the size of their household. For people on the pay-as-you-earn plan, the amount is more than 10 percent.
What You Can Do
If you are facing a financial hardship, you have several options, from changing the repayment plan on your student loans to working with a credit counselor to set up a debt management program. Speaking with a credit counselor is usually a great first step. A counselor can review your current financial situation and make recommendations to you based on it.
For example, along with enrolling in debt management or considering a new payment plan, you may be able to get back on your financial feet simply by adjusting your monthly spending in other areas or by otherwise adjusting your budget.
The key thing to note about a financial hardship is that it’s usually something you can’t control and is something that isn’t your fault. Since life can throw you a curve ball from time to time and even the best laid financial plans can get derailed, many lenders and creditors will be willing to work with you, at least to some degree, until your financial hardship is over.
Image Source: Flickr
Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY