6 Fast Natural Disaster Financial Relief Options
Federal Assistance Is Just One Way to Get Financial Help in a Disaster
From forest fires and earthquakes to hurricanes, derechos, and bomb cyclones, natural disasters can take a serious financial toll. In 2019, it's estimated that natural disasters racked up $232 billion in losses in the U.S. alone.
The federal government offers financial relief to individuals and businesses that have been affected by natural disasters. The Federal Emergency Management Agency (FEMA), for example, provides financial help for things like housing and basic living expenses. The Small Business Administration extends low-interest disaster relief loans to businesses, as well as renters and homeowners located in areas affected by declared disasters.
But those funds can take time to trickle down, which may not be helpful if you need financial relief now. There are, however, some other options you can turn to for financial help when a natural disaster strikes.
Staying in touch with your mortgage lender is a must if you've been through a natural disaster or any other type of financial hardship, Zach Reece, a certified public accountant and small business owner of Atlanta-based Colony Roofers told The Balance via email.
"There's always a temptation for people to ride it out and hope for the best, but you must begin making a plan of action with a mortgage professional so you don't lose your home," Reece said via phone.
Depending on your lender, your options might include:
- Temporarily pausing payments through a deferment or forbearance
- Refinancing into a new loan to reduce your monthly payments
- Restructuring or modifying the loan, which may involve extending your repayment period
Your mortgage relief options may hinge on what type of loan you have. If you have a Fannie Mae or Freddie Mac guaranteed home loan, for instance, you may be eligible to have your payments suspended for up to 12 months, have late fees or penalties waived, and have any delinquent payment reporting to the major credit bureaus suspended.
Similar options also exist if you have an FHA loan, USDA loan or a VA loan. With all three, you'll need to contact your mortgage lender or loan servicer to discuss options.
Before agreeing to forbearance, deferment, or any other changes to your mortgage repayment plans, read the fine print. Specifically, look for any mention of how interest may accrue on the loans and whether any lump sum amount or balloon payment is required to cover payments that were temporarily suspended.
Crowdsourcing or crowdfunding is another option for raising money quickly in a disaster. Sites like GoFundMe, for example, allow you to set up a campaign and accept donations from friends, family, or even strangers. This is money that doesn't have to be paid back.
Peer-to-peer loans are another option. For example, Lending Club allows you to take out personal loans that are funded by one or more investors. It's possible to get approved and have your loan funded in a matter of days.
Keep in mind, however, that peer-to-peer loans need to be repaid with interest. So even though you may be getting short-term financial relief, you could be creating a long-term debt obligation.
Timing may also be an issue since you may only have a specific window in which to fund your loan request. "Crowdsourced loans can be a fast way to get awareness to your situation and find interest-free financial relief, but only if you're able to raise the amount you need in the given time frame," Reece said.
When using a crowdfunding platform or a peer-to-peer lender, be sure to review the service fees you might pay to launch a campaign. And of course, check the interest rate and fees associated with a loan.
Personal loans can put a lump sum of cash in your hands that you could use for virtually any purpose in the wake of a natural disaster. For example, you might use a personal loan to:
- Pay your bills if you're unable to work
- Cover emergency housing if you're still waiting on assistance from the federal government or your insurance company
- Replace lost or damaged personal necessities, such as toiletries or clothing
- Pay boarding expenses for pets if they're unable to remain with you in temporary housing
Personal loans or even a credit card could be helpful for covering month to month expenses following a natural disaster, Ethan Taub, CEO of Loanry told The Balance via email. Similar to crowdfunded loans, however, it's important to consider the APR and fees you might pay.
If you're looking for a personal loan to help out after a natural disaster, be sure to comparison shop. You might start with your current bank or credit union, but you may also want to look at online lenders to see who offers the most favorable rates and loan terms. If you think you may need funds on an ongoing basis, weigh the benefits of getting a personal line of credit instead of a loan. A line of credit can allow you to spend as needed, while only paying interest on the amount of your credit line you're using.
State and Local Government Programs
In addition to federal programs, you may be able to get financial help following a natural disaster from your state and/or local government. At the very least, state and local agencies may be able to help direct you toward the organizations that can provide the help you need.
The kinds of help that may be offered include things like:
- Temporary housing assistance
- Help with paying utility bills
- Medical care assistance
- Food assistance
- Legal aid
To find out what's available in your area, you can check with your state's emergency management division if one exists. And if not, you can reach out to your state or local department of health and human services.
Nonprofit and charitable organizations can be another source of immediate relief during and after a natural disaster. Some of the agencies that offer help to natural disaster victims include:
The types of assistance you can receive may vary. Some organizations can provide financial support while others take a different approach. Everest Effect, for instance, helps people in need get basic hygiene and household items following a natural disaster.
When looking to nonprofit organizations for help, don't be afraid to cast a wide net. "You're allowed to reach out to multiple places to get help, you're not limited to one place," Loanry CEO Taub said. "And once you're approved, get as much help as you need to."
Use an online tool like Guidestar to search for organizations that offer disaster relief assistance near you.
401(K) Hardship Withdrawal
If you have money in a 401(k), tapping into it via a hardship withdrawal could be a last-resort option in a natural disaster emergency. The IRS allows for hardship distributions from a 401(k) when certain conditions are met. Specifically, that means:
- Having an immediate and heavy financial need
- Withdrawing only what is needed to meet that need
If your 401(k) plan allows for hardship distributions you could get cash in hand fairly quickly. But keep the tax consequences in mind.
"If hardship conditions are claimed but do not actually qualify, a 10% early withdrawal penalty is assessed," said David Gottlieb, wealth advisor at EisnerAmper Wealth Management and Corporate Benefits. In other words, you must be sure that you're eligible for a hardship distribution before taking one.
Additionally, hardship distributions are taxed as ordinary income, which could result in a higher tax bill. The upside, said Gottlieb, is that unlike a 401(k) loan, a hardship distribution doesn't have to be repaid. Before taking a 401(k) hardship distribution, consider using an online calculator to estimate the tax costs of an early withdrawal.
How to Request Help
If you need financial assistance or help of any kind following a natural disaster, connecting with the right resources may seem overwhelming. In any natural disaster situation, the federal government urges you to contact FEMA first. But beyond that, you can work down the list of resources included in this article and:
- Contact your mortgage lender (and any other lenders or creditors that you may want to seek relief from)
- Consider whether you want to set up a crowdfunding campaign or apply for a crowdfunded loan
- Compare interest rates for personal loans online
- Connect with your state's emergency assistance agency or department of health and human services
- Search for national and local nonprofits that provide disaster relief
- Talk to your human resources department about whether a 401(k) hardship distribution is an option
In any of these scenarios, be prepared to explain in detail the circumstances of your financial situation and needs. This can help assistance providers you’ve contacted find the best solution for disaster relief.