how to remedy financial distress
as difficult as it may seem there are some ways to turn things around and remedy financial distress one of the first things many companies do is to review their business plans this should include both its operations and performance in the market as well as setting up a target date to accomplish all its goals another consideration is where to cut costs this may include cutting staff or even cutting back on management incentives which can often be costly to a business s bottom line some companies may consider restructuring their debts under this process companies that cannot meet their obligations can renegotiate their debts and change their repayment terms in order to improve their liquidity by restructuring they can continue operations for individuals who experience financial distress the tips to remedy the situation are similar to those listed above those affected may find it prudent to cut back on unnecessary or excessive spending habits such as dining out travel and other purchases that may be deemed a luxury another option may be credit counseling with credit counseling a counselor renegotiates a debtor s obligations allowing him or her to avoid bankruptcy debt consolidation is another method for reducing monthly debt obligations by rolling high interest debts such as credit cards into a single lower interest personal loan distress in large financial institutionsone factor contributing to the financial crisis of 2007 2008 was the government s history of providing emergency loans to distressed financial institutions in markets believed too big to fail this created an expectation for parts of the financial sector being protected against losses known as moral hazard the federal financial safety net is supposed to protect large financial institutions and their creditors from failure to reduce systemic risk to the financial system however these guarantees also encouraged imprudent risk taking that caused instability in the very system the safety net was supposed to protect because the government safety net subsidizes risk taking investors who feel protected by the government may be less likely to demand higher yields as compensation for assuming greater risks likewise creditors may feel less urgency for monitoring firms implicitly protected excessive risk taking means firms are more likely to experience distress and may require bailouts to stay solvent additional bailouts may erode market discipline further resolution plans or corporate living wills may be an important method of establishing credibility against bailouts the government safety net may then be a less attractive option in times of financial distress 