Sometimes the reason for a financial crisis is obvious – a wage-earner in a family was laid-off, or a family member got sick and there was no health insurance to cover mounting medical bills, etc. But often even just one obvious issue (i.e. losing a job) quickly impacts other areas (i.e. ability to pay insurance premiums or a mortgage payment) and results in a negative, cascading effect. For example:

A company cuts back on production and a wage earner in the family loses a second shift. The second shift income was helping cover some of the family’s expenses (i.e. cell phone bills, utility bills, doctor office co-pays, etc.). That loss of income means that the family begins pulling money out of their everyday or variable spending to pay for fixed expenses (i.e. rent or mortgage, car loan, etc.). Because they don’t have the cash money they begin charging variable or everyday expenses on credit cards

Not having enough money to pay off those bills in full each month, the family begins to accumulate high interest rate credit card debt.

When more unexpected expenses occur (i.e. a car repair bill, increase in insurance premium, etc.), the family either adds to their credit cards, takes out a high-interest short-term payday loan, or starts to look at other options like taking out a home equity loan or borrowing against their retirement savings.

Their high-interest credit card debt rapidly increases and/or the value of their accumulated savings (i.e. home equity) drops…and the cycle continues.

You can begin to see how an unexpected, sudden or unwanted change can create significant and stressful pressures, and how someone can feel overwhelmed about how to turn the tide to get back on solid financial footing. But the good news is that often there are ways you can help people identify the root causes, establish financial priorities and pursue courses of action (i.e. decrease spending and/or increase income, etc.) that can create a positive change.