How to Recover from a Financial Setback: Strategies for Rebuilding

Financial setbacks happen to everyone at some point. Job losses, unexpected medical expenses, or poor financial decisions can strain your finances. While setbacks can feel overwhelming, recovery is possible.

Here are some tips on rebuilding and regaining control of your financial future after a setback.

Assess the Damage

The first step to recovery is to determine where you stand. Dig deep into your finances, listing all your debts, expenses, and income sources, and then identify the root cause of the setback and address it as needed. This could be looking for a new job, calling your medical provider to set up a payment plan, or talking to a financial advisor to determine whether you can move assets around to pay off any high-priority debt.

Once you know the situation, you can develop a realistic plan.

Create a New Budget

Adjusting your budget is crucial to accommodating your current financial situation. Prioritize essentials such as housing, utilities, and food. Cut unnecessary expenses and look for ways to save. Small changes, like cooking at home or pausing subscriptions, can make a big difference.

Tackle Debt Strategically

If debt is part of your financial setback, create a repayment plan. Here are a few options:

Snowball Method
Pay off the smallest debt first while making minimum payments on others. This method builds motivation, as you can observe quick progress, giving you a psychological boost.¹

Avalanche Method
Focus on paying off high-interest debts first while making minimum payments on other balances. This approach saves you more money in the long run by reducing interest payments.²

Debt Consolidation
If you have multiple debts with high interest rates, consolidating them into a single loan with a lower interest rate can simplify payments and reduce costs.

Debt Management Plan (DMP)
Working with a credit counseling agency to create a structured repayment plan can help negotiate lower interest rates and waive specific fees.

Negotiation and Settlement
Some creditors may be willing to negotiate a lower payoff amount or adjust repayment terms if you’re struggling to keep up. Contact them directly to explore options.

Balance Transfer
If you have high-interest credit card debt, transferring balances to a card with a lower interest rate (often with an introductory 0 percent APR) can help you pay down the principal faster.

Build an Emergency Fund

An emergency fund can prevent future setbacks even if you can set aside only a small amount each month. Aim for at least three to six months’ worth of essential expenses. Start with a small, achievable goal and increase contributions as your finances improve.

Increase Your Income

Finding ways to boost your income can accelerate financial recovery, especially if you’re in a tough spot. Consider:

Taking on a side gig or freelancing
Selling unused items
Asking for a raise or looking for higher-paying job opportunities

Every extra dollar can go toward savings or debt repayment.

Seek Professional Guidance

If your situation feels unmanageable, a financial advisor or credit counselor can provide guidance. They can help create a structured plan, negotiate with creditors, and offer strategies tailored to your specific situation.

Maintain a Positive Mindset

Financial recovery takes time, and setbacks can be discouraging. Stay focused on your progress and celebrate small wins. Surround yourself with supportive people, and remind yourself that financial hardships are temporary.

A financial setback can be challenging, but it can also be an opportunity to build more vigorous financial habits. You can rebuild and secure a better financial future by assessing your situation, adjusting your budget, tackling debt, and finding ways to increase your income.

As always, let us know if you have any questions.

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

Phillip Tompkins, CFP®

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, LLC [“CRA]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CRA is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of CRA’s current written Disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.crafinancial.com. Please Note: If you are a CRA client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CRA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (to the extent applicable). Unless expressly indicated to the contrary, CRA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of CRA by any of its clients. ANY QUESTIONS: CRA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.