What to do in a financial emergency

Financial emergencies can take many forms. For example, you could completely lose your income because of redundancy or being too ill to work. Alternatively you might split up with your partner and suddenly have to manage your money as a single person.

On a more day-to-day basis you could find yourself faced with a large bill for car repairs or a boiler breakdown, or trying to raise a deposit for a new rental property.

Whatever the type of financial emergency, it’s best to be prepared. Planning ahead can help reduce the financial impact of such an event.

Should you have a financial emergency, the following six tips may help.

1. Don’t panic

If you run into financial difficulties, don’t stick your head in the sand. Financial problems will get worse if you don’t deal with them straight away.

If emergency strikes, do your best to stop spending. This means cutting back on luxuries such as eating out, new clothes, holidays and expensive gym memberships.

Before you buy anything at all, think about whether you really need it. If you do, can you buy it cheaper elsewhere?

If your income is suddenly reduced, prioritise your payments. Keeping a roof over your head should be your number one priority so do your best to pay your rent or mortgage on time. Next important are bills such as council tax and utilities.

If you have debts, contact your debtors and re-negotiate payment plans. Some may be willing to freeze the interest on your accounts. Here at the Newcastle we are keen to keep borrowers in their homes if they run into trouble – so talk to us.

A debt charity such as Step Change can help you if you need help dealing with debtors or day-to-day budgeting.

2. Are you entitled to any benefits?

If you lose your job or become too ill to work there may be some state benefits you’ll be entitled to.

The Government recommends two independent benefits calculators to help you work out the benefits you might be able to claim.

The first is Turn2Us which helps people in financial need to access welfare benefits, charitable grants and other financial help. Turn2Us is part of Elizabeth Finn Care, a registered charity.

You can contact it online at turn2us.org.uk, by phone or through partner organisations. The benefits calculator on the Turn2Us website can tell you if you’re entitled to any state support.

The second benefits calculator is at entitledto.co.uk. It includes information on state benefits and how these will be affected if you start work again.

However, be aware that state benefits alone may not be sufficient to maintain your usual standard of living

According to the official Government website (gov.uk) at the time of writing, Statutory Sick Pay (SSP) is just £87.55 a week. This is paid by your employer for up to 28 weeks, but to qualify you must have been ill for at least four consecutive days.

When SSP runs out or if you’re unemployed, you may be able to claim Employment and Support Allowance (ESA). Currently, this will be a maximum of £72.40 a week for the first 13 weeks and up to £108.15 a week after that. These amounts are subject to change by the Government. Up-to-date amounts can be found on the Government website at https://www.gov.uk/browse/benefits

If you receive ESA, you may also qualify for other income-related benefits, such as Housing Benefit (if you rent) and Council Tax Benefit.

Homeowners can’t claim Housing Benefit but they can apply for Support for Mortgage Interest (SMI) to help pay the interest on their mortgage.

3. Plan ahead

Financial experts recommend that everyone saves money into a rainy day fund specifically for emergencies.

Think about how much money you need to live on each month by adding up your rent or mortgage, utility bills, council tax, travel costs, food bills and any debt repayments you need to make.

Once you’ve arrived at a monthly figure, aim to stash away three to six months’ money – it’s not easy but the more you can save the better.

Save the money in an instant or easy access savings account – this will mean you can access it without notice in an emergency. An easy access cash Isa is a good choice as the interest will be paid tax-free. You can save up to £20,000 in an Isa each tax year.

Do your best not to dip into the money for anything else.

See our range of savings accounts

4. Seek help

If you find yourself struggling with debts or household bills you can seek independent advice from certain agencies.

The Citizens Advice Bureau offers advice about debt, different types of borrowing and how to deal with problems paying your rent or mortgage or other bills.

Alternatively the Government-backed Money Advice Service offers a free and impartial advice service to help people manage their money.

5. Life insurance

If you have a partner or family who rely on your salary, it’s important to think about how they’d cope if you were to pass away.

Life insurance is designed to pay out in the event of death or terminal illness and can help a surviving partner and any children maintain their lifestyle.

Policyholders pay a monthly premium depending on their circumstances and the sum insured. In the event of their death a one-off payment is made to the beneficiary. This is often used to pay off a mortgage but can be used for anything – to replace the salary of the deceased partner or to pay for a child to go to university, for example.

6. Protection

However, death isn’t necessarily the biggest threat to your family’s finances; falling ill or being made redundant is much more likely.

With state benefits often not enough to maintain an individual’s usual standard of living, many people take out an income protection policy. This type of insurance will pay out if you can’t work due to sickness or accident or, in some cases, if you’re made redundant.

Pay-outs are based on a percentage of your earnings, usually 50% to 70%, and payments are tax-free.

Another option is critical illness cover which is designed to pay out if you are diagnosed with certain conditions. However, it’s important to read the policy small print as cover will be subject to exclusions and may not cover pre-existing conditions. The money can be spent on whatever you like – such as paying the mortgage and bills, childcare, or private medical treatment.

Newcastle Building Society offers a range of savings options and offer Protection options through our subsidiary company Newcastle Financial Advisers. Newcastle Building Society introduces to Newcastle Financial Advisers.

Newcastle Financial Advisers is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority.

Book an appointment with a qualified Protection Adviser who can help you choose the best options for your individual needs.

Simply call 0345 734 43435, click here or pop into your local branch.

Newcastle Building Society introduces to Newcastle Financial Advisers Limited for investments, pensions, inheritance tax planning, financial advice and life cover. Newcastle Financial Advisers Limited is an appointed representative of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.