No More Sleepless Nights – Solving Financial Emergencies with Loans | Financial emergencies can strike suddenly and leave you without a plan. The first step is to remain calm and carefully evaluate your situation. Running around in a panic will not solve the problem, but it may add to your stress levels.
Next, prioritize your expenses. Essentials like rent, utilities, and food should be top priority. Consider a personal loan, credit card, or payment assistance program for help with your debt payments.
1. Personal Loans
There are many reasons why people use personal emergency loans, including financing major one-off purchases, paying for a wedding or vacation, and consolidating debt. Personal loans can offer a more affordable way to borrow money than credit cards or other loan types, and you can often choose the type of personal loan that best suits your needs. If you need to finance a large purchase, compare rates and terms on multiple loans before making a decision. Also, consider how the monthly payments will impact your budget to make sure you can afford the loan’s repayment schedule.
Personal loans are a type of installment loan that is generally unsecured, meaning you don’t have to put up collateral such as your home or car to secure the funds. However, there are some lenders that require collateral for a personal loan. In most cases, lenders want to verify your income and credit score before dispersing the funds. You should also be prepared to provide a detailed description of how you plan to spend the money and why you need it.
A personal loan can help cover emergency expenses, such as a sudden loss of employment or medical issues. It can also cover unplanned costs, such as a home renovation project. However, you should always be wary of using a personal loan to fund everyday spending or to buy unnecessary items. You should only take out a personal loan to pay for expenses that are essential to your financial security and well-being.
Many consumers turn to personal loans when their emergency savings are drained. While this is not ideal, it can provide peace of mind in the short term while you rebalance your budget and savings. You can find personal loan options that match your profile and credit score by using Experian’s free CreditMatch service.
Personal loans are also popular for managing existing debt, such as credit card debt. This takes the form of a debt consolidation loan, which bundles multiple debt accounts into a single product with a single interest rate and payment. Depending on the amount of debt you have and your ability to meet monthly payments, you may save money by paying off your high-interest debt with a personal loan.
2. Credit Cards
Credit cards are financial payment tools that can help make it easier to pay for unplanned expenses when they happen. They operate as a type of loan and typically come with a maximum credit limit that you can use to make purchases. Credit card companies also charge interest when you don’t pay off your credit card balance each month, which can add up over months or even years. Ideally, you should have enough money in savings to cover three to six months of essential living costs so that you don’t have to resort to credit when unexpected bills come up. However, if this isn’t possible for you, it might be worth using your credit cards to cover unforeseen expenses as long as you take steps to avoid going into debt.
If you don’t have enough money in savings to cover an emergency expense, the best option is to get a personal loan or charge card with a low-interest rate. A personal loan can save you from having to pay credit card interest rates and can give you a set amount of money to pay back each month. A charge card is another good choice because it doesn’t charge interest as long as you pay your balance each month.
It’s also important to be careful with how you use credit cards because if you don’t pay your balance on time, it can negatively impact your credit score and prevent you from being able to qualify for loans in the future. You can reduce the damage to your credit by making more than the minimum payment on time each month and attacking your credit card debt with an aggressive payoff plan.
You should also keep some cash on hand in case you are faced with two emergencies at the same time. Relying on credit cards can quickly lead to you maxing out your card, which can destroy your credit and prevent you from getting new loans in the future. If you need to, you can borrow from friends or family with a short-term loan or a line of credit that does not require an equity stake.
3. Loans from Friends and Family
It’s natural for people to turn to family and friends for financial support, especially during times of crisis. For example, if a person loses their job, has a medical emergency, or experiences an unexpected bill, relatives and close friends can provide a much-needed loan. The good news is that these loans often come without interest, unlike payday or installment lenders. However, they can put strain on relationships if the terms of repayment aren’t clear or agreed upon upfront.
When lending to a friend or relative, it’s important to set the terms of repayment clearly before giving them any money. This can help prevent problems down the road, such as conflict over spending habits. For instance, a borrower could get a loan from a family member and then spend freely at the mall or on a vacation because they’re not thinking about their monthly repayment schedule. This can lead to resentment when the loan is due, even if the borrower is making payments on time.
The best way to avoid this is to consider the situation from the perspective of both parties. For example, a lender needs to consider whether it’s financially feasible for them to offer the loan without putting too much strain on their own finances. Additionally, it’s a good idea to consider the friend or family member’s willingness to pay back the loan and what kind of impact the loan might have on their future plans, such as retirement.
During the COVID-19 pandemic, researchers found that those who were saving for emergencies and had access to resources from family and friends experienced a lower risk of hardship than those who didn’t save or didn’t have a source of funds. This research was published by BlackRock’s Financial Health Network, a collaborative that advances awareness and understanding of the link between savings, debt, financial services, and well-being.
When it comes to loans from friends and family, it’s a good idea to think through the pros and cons before lending or borrowing. For example, it’s possible that a person may be in so much debt or their credit so tarnished that traditional lending institutions are unwilling to lend them money. In this case, a loan from a family member or close friend may be the only option.
4. Payment Assistance Programs
If you are suffering a financial emergency due to a medical crisis, unpaid maternity leave, or other unexpected costs, there are many resources available to help you get through the crisis. You can find social service crisis assistance programs, free government cash grants and money, and utility aid to pay your bills. There are also nonprofit organizations and online fundraising that can provide assistance in times of need. United Way’s 2-1-1 has trained professionals who can help you with a range of needs, including utility assistance. Modest Needs is another great option if you need cash to pay your bills.
