Recovering From Debt After A Natural Disaster

crisis Recovering From Debt After A Natural Disaster

The effects of a natural disaster are widely felt, even by people who watch news coverage of its impact. However, far from what can be seen on television and online videos of immediate physical problems, the financial consequences of natural disasters are more destructive than the disaster.

For most people, surviving a disaster comes with damaged homes and businesses, income disruption, depleted savings accounts, and maxed credit limits, often caused by ongoing out-of-pocket costs incurred during recovery. As such, most affected persons accumulate debt even before they can get back on their feet.

Below are a few ways natural disasters cause financial problems and how affected persons can recover from stressful financial situations.

Common Financial Problems After Natural Disasters

Below are common financial challenges you should expect after a natural disaster:

  • Accounts Going into Collection

Suppose the disaster, be it flood damage or earthquake, forces you out of your home; utility companies and other service providers won’t easily reach you. If a service provider or creditor can’t contact you, they can forward your debts to a collection agency. Forwarding your debts to collection agencies negatively affects your finances, credit score, and reports.

  • Failed Loan Deferral or Suspension

Most lenders allow loan borrowers affected by natural disasters to defer their payments for some time. However, according to their terms, borrowers should clear any outstanding loans immediately after the grace period. In addition, depending on your loan type, your loan servicer may temporarily suspend or reduce payments to accommodate your financial position.

However, if the lender agrees to a forbearance, loan deferral, or loan modification, ensure that you understand the fine print in the agreement. For instance, if you can’t pay your mortgage premiums and are worried that you can’t pay the pending payments after the grace period, inform your lender immediately. Then, you can work out a repayment plan.

  • Difficulties Paying Contractors

Most homeowners hire contractors immediately after the disaster to repair their homes and businesses. However, before hiring a contractor, you should check with your homeowners’ insurance company and mortgage company to avoid difficulties in making contractor payments.

Sometimes, mortgage agreements require insurance checks to be made to the mortgage company and homeowner. This affects your ability to cash any issued insurance checks because it requires approval from the mortgage company. Ideally, the mortgage company should agree to release part of the settlement money to the contractor to begin renovations.

  • Pending Auto Loans

Some natural disasters, like floods and fires, cause extensive property damage. If your car is affected by the disaster, your insurance provider should assess its value based on the model, age, and other determinants to calculate the due compensation. Unfortunately, vehicle damage doesn’t cancel your responsibility to pay pending auto loans.

If the repair cost surpasses the vehicle’s value, the insurance company often declares it a write-off. Unfortunately, if the remaining auto loan is more than the insurance compensation paid for the totaled car, you should pay the auto loan lender the difference. This is often called negative equity. As such, taking Guaranteed Auto Protection Insurance is prudent. This policy covers negative equity.

  • Overdrawn Accounts

Electrical blackouts, floods, and other natural disasters often make it challenging to send or stop automatic payments in a timely manner. If such continues, account owners often find their accounts overdrawn.

  • Fraud

Frauds targeting persons affected by natural disasters are common. Scammers know you are desperate and will ask for upfront payments to offer loan modifications or work on home renovations. Scammers can also pose as insurance agents, government employees, or an employee of your bank.

How To Recover From Debt After A Natural Disaster

While getting into debt after a natural disaster is inevitable for most people, these tips help affected persons achieve financial stability.

1. Prioritize Payments

It is usual for financial obligations to mount after a natural disaster. Due to increased demand, house prices rise, building materials become costly, and food materials become scarce and expensive. Therefore, you should prioritize payments to acquire essential items first.

Categorize your needs into low and high priorities to maximize recovery while ensuring you have the necessities to survive after the disaster. Non-negotiables, such as transport, insurance, food, medical needs, and housing, should be a priority. You can put off other expenses until everything returns to normalcy.

2. File Insurance And Assistance Claims

Federal assistance and insurance claims can help affected persons recover from debt after a natural disaster. Therefore, you should file your insurance claims and apply for federal assistance immediately to promote financial stability. Call your insurance agent and initiate the claims process. Most insurance companies have strict deadlines for filing claims after a disaster.

Similarly, you should apply to all eligible federal assistance programs. The following agencies are on the front line for disaster survivors in need of financial assistance:

  • Small Business Association
  • Federal Emergency Management Agency
  • Food and Drug Administration

Submitting these claims immediately after a disaster avails funds sooner, mitigating the possibility of worsening financial status.

3. Reach Out To Your Creditors

Generally, managing debt is incredibly challenging. This becomes chaotic after a natural disaster. Fortunately, most lenders are flexible and willing to make payment arrangements for those affected by catastrophic events. Creditors can support survivors by:

  • Pausing monthly payment premiums for a specific period
  • Allowing lump sum payments later
  • Offering loan modifications that make monthly payments affordable

To promote financial stability, request if your creditor can make these changes without affecting your credit report. While creditors don’t usually accommodate such requests, if your lender agrees, note these details, and remind them continually.

4. Choose A Long-term Strategy

Accessing aid and negotiating with creditors allows you to adjust to the new financial reality. First, however, you should add up the accumulating personal debts, medical costs, and credit card debts to determine how long it would take to pay them off comfortably while living comfortably.

Without proper organization, debt repayment can endanger your basic living. Most people set a long-term strategy of five years. If you can meet this deadline:

You can accelerate debt payment with a DIY approach, such as debt avalanche, where you make extra payments towards your pending debts, starting with debts with high-interest rates.

You can opt for debt consolidation through a personal loan or a balance transfer credit card. Again, this favors those with good credit.

Create a debt management plan with the help of a non-profit credit counseling agency. These programs eliminate credit card interest rates, enabling you to clear debts within a short period.

If you can’t meet this deadline, you can file for bankruptcy.


Apart from missing work and lost wages following a disaster, you can easily spend $200 daily on meals, gas, and lodging. This situation worsens if you have pending mortgage and auto loans. Even with significant savings, credit card balances can quickly pile up, forcing you into debt. While recovering from debt after a natural disaster is challenging, the above tips are handy.