As of 2025, U.S. household debt is at a record-breaking high of $18.2 trillion, with 45.2% of families carrying credit card balances. Unfortunately, with this level of debt, financial setbacks are inevitable for many of us. Everyone faces financial challenges at some point, like unexpected medical bills, job loss, or market changes. With rising interest rates and increasing everyday expenses, many households are feeling more financial pressure than ever.
However, it's not the setback itself that defines your financial health, but rather how you respond to it. With some smart financial decisions, you can navigate through financial setbacks and emerge stronger.
Assess Your Financial Situation After a Setback
The first step in dealing with any financial setback is to assess the situation. Take stock of your current financial situation, including your income, expenses, debts, and savings. Review recent bank statements, credit card balances, loan accounts, and monthly bills to get a complete financial snapshot. In some cases, the cause of a setback is obvious, but sometimes it may result from a series of subtle events.
Understanding your financial situation can help you create a plan to improve it. This can also prevent you from making poor financial decisions in the future. As you assess your situation, consider the following questions:
- What caused the setback?
- How much debt do you have?
- What are your immediate financial needs?
- How much cash flow do you have available each month?
- Which expenses are essential versus discretionary?
Create a Monthly Budget to Regain Financial Control
In times of financial difficulty, having a budget becomes even more crucial. Now is the time to review your spending and focus on essentials like housing, bills, and groceries. Look for ways to cut back on frivolous spending and identify areas where you can free up financial resources.
Examples of ways to reduce monthly spending include pausing or cancelling subscriptions or memberships, choosing generic brands at the grocery store, and eating at home. Explore budgeting tools in My Money Manager available within Online and Mobile Banking. You can create a budget to monitor and track spending, manage cash flow, set spending and savings goals, and add alerts.
Build an Emergency Savings Fund
If they were to lose their primary source of household income tomorrow, 66% of U.S. adults worry that they wouldn’t have enough emergency savings to cover a month’s living expenses. Having an emergency fund acts as a buffer against unexpected financial challenges. If you don't already have emergency savings, start building it as soon as possible.
You can start small by automatically transferring money from your checking account to your savings account on a regular basis. Even saving $25 or $50 a paycheck can build momentum over time. Ultimately, you will want to save three to six months' living expenses in an easily accessible account for emergencies. This will help during difficult times. First American Bank offers savings accounts, money market accounts, and certificates of deposit to help you start building your emergency savings.
Communicate with Creditors and Explore Hardship Options
If you're struggling to meet debt obligations due to a financial setback, the worst thing you can do is ignore the problem. Reach out to your creditors and explain your situation. Many lenders offer hardship assistance programs or payment plan arrangements to help borrowers facing financial difficulties. These hardship programs are designed to help borrowers avoid default by:
- Reducing or pausing payments
- Lowering interest rates
- Waiving late fees
Qualification for these programs is determined on a case-by-case basis, so it is important to reach out and explain your situation. Proactive communication increases your chances of approval, protects your credit score, and can prevent the situation from escalating further. If you have a loan or credit card with First American Bank and need financial assistance, contact us so we can discuss your options.
Prioritize Debt Repayment
If you have high-interest consumer debt, paying it down can help relieve ongoing financial strain. The best way to start is by using NerdWallet’s debt load calculator to understand how much you owe. This will help you decide whether you can use a DIY debt-reduction strategy or should consider debt-relief options. Two DIY debt payoff strategies that are popular are:
- Debt Snowball Method: Focus on paying off your smallest balance first. Put all extra money toward one loan while paying the minimums on your others.
- Debt Avalanche Method: Focus on paying off the balance with the highest interest rate first, then move to the next highest rate and so on.
Both of these methods improve credit utilization and support long-term financial health. If DIY debt payoff doesn't work, try consolidating debts or negotiating with creditors for lower interest rates. Creditors can work with you to implement a debt repayment strategy that aligns with your budget and financial goals.
Stay Positive and Adapt Your Financial Plan
Maintaining a positive attitude and remaining adaptable in the face of setbacks is essential for long-term financial resilience. Accept the reality of your challenge and work to address it quickly. Remember that setbacks are temporary, and focus on what you can control instead of worrying about broader economic factors that you can't change. Regularly review your budget and adjust as your income and expenses change. Also, make sure to adjust your strategies as needed and celebrate small victories along the way.
Financial setbacks can be daunting, but with the right approach, you can overcome them and emerge stronger. By assessing your situation, creating a budget, building an emergency fund, communicating with creditors, prioritizing debt repayment, and maintaining a positive mindset, you can successfully navigate through tough times.
First American Bank offers savings accounts and financial calculators to help you navigate your finances. Contact us or visit one of our Illinois, Wisconsin, or Florida branches to get started. Our team is committed to helping you build financial resilience and achieve lasting success.
