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How to Recover From Big Financial Setbacks

Don't panic—our experts have advice for getting your finances back on track.

It can happen to anyone: One minute, things are great, and then the next, you've got a crisis on your hands. Life has a way of derailing plans, and when you're not prepared, financial setbacks will happen. Whether it's a job loss, a medical emergency that's racked up major debt, or some other unforeseen event, suddenly finding your funds drained can happen to anyone. That's why it's so important to know how to recover from those big financial setbacks.

Regardless of the cause, taking action is the key to regaining financial health. These setbacks come in different shapes and sizes, but you can get back on track. Best Life spoke with financial experts who shared the key steps to get your finances back in order—and how to prevent future setbacks.

RELATED: 10 Savvy Strategies for Paying Off Debt Fast, According to Finance Experts.

Create a Detailed Budget

A woman sitting at a laptop while budgeting or filing taxes
iStock / pixdeluxe

The first step to recovering from a big financial setback is to create a detailed budget, examine your income in-depth, track your spending, and understand your financial position.

"This clarity helps identify problem areas and opportunities for savings, ensuring you live within your means," says Shawn Plummer, financial Advisor and CEO of The Annuity Expert.

Pay Off High-Interest Debt

Couple managing the debt

If you're facing a financial setback, chances are you may have taken out loans, a line of credit, or maxed out credit cards. To reduce the financial burden, focus on paying off the high-interest debts first.

Plummer says, "High-interest debts grow quickly, so paying them off first saves money in the long run and reduces financial stress."

RELATED: 10 Reasons You Should Switch to a High-Interest Savings Account.

Communicate With Your Creditors

concerned older man on the phone

If you're unable to pay your debts, don't ignore your bills while you're trying to stabilize your finances. That won't help! Instead, address the problem with your creditors.

"Explain your situation and request temporary relief or adjusted payment terms to ease your financial burden," Plummer advises. "Many creditors are willing to negotiate payment plans or offer hardship programs if they understand your predicament."

Educate Yourself on Personal Finance

Middle Aged Woman Researching on Computer
Ground Picture / Shutterstock

Financial loss can happen to anyone, but it doesn't have to be an endless cycle. Learning financial intelligence is beneficial for building and maintaining wealth.

"Read books, attend workshops, or consult a financial advisor to improve your financial literacy and decision-making," Plummer recommends. "Understanding personal finance principles can help you make better financial choices and avoid future pitfalls."

RELATED: 11 Hidden Things That Affect Your Credit Score, Finance Experts Say.

Make Sure Your Final Wishes Are Up-to-Date

A senior couple sitting at a table looking over documents
shapecharge / iStock

Nobody likes to think about final wishes, but it's important—especially when recovering from a financial setback. Having your affairs in order and estate documents prepared and up-to-date is vital.

"A big part of recovering from a financial setback is executing a plan so that the risk of loss can't get through, or at least has a harder time getting through your defenses again," says Eric Mangold, CWS, founder of Argosy Wealth Management.

RELATED: 7 Things to Leave Out of Your Will, Experts Say.

Learn How to Prevent Another Financial Setback

Focused young woman in eyeglasses looking through paper documents, managing business affairs, summarizing taxes, planning future investments, accounting alone at home office.

Financial setbacks are scary and stressful and not always avoidable—but you can try to prevent them.

"My crucial advice to reduce the impact of future financial crises is to diversify your income streams," Plummer shares.

In the event of an economic downturn or unexpected issue, one source of income is too risky to rely on. But by having multiple revenue streams, you can create a safety net.

"This approach can include investments, side businesses, or passive income sources like rental properties," Plummer explains.

Another way to prevent a financial setback is to set up a line of defense to protect your finances from unexpected hits.

"When I'm working with my clients, we strive to build a layer of protection to help insulate us from loss," Mangold says. "That could mean having an ample emergency fund and the right protections in place through your auto insurance, home insurance, and umbrella insurance."

Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.

Heather Newgen
Heather Newgen has two decades of experience reporting and writing about health, fitness, entertainment and travel. Heather currently freelances for several publications. Read more
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