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There are unhappy events that happen in life and in your business that you simply can’t plan for. Because of this reason, having a specially dedicated emergency fund is always wise. However, it is often hard to plan for that kind of saving.
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How can you pay for an emergency if you haven’t done the necessary saving and planning? Luckily, there are a few options at your disposal. The following suggestions could help if you should come across an expensive personal, business, or family emergency in the future.
Use a Credit Card
One option at your disposal is to depend on your credit. That is, you could use a credit card to pay for the emergency.
The positive aspect of using a credit card is that the credit is already readily available to you. Moreover, you can pay for whatever you need quickly. However, this is only true if you have enough credit available to pay for your emergency.
The one thing to keep in mind, though, is that using credit cards to pay for emergencies can be risky. First, you run the risking of maxing out your cards. That means that you will use all the credit available to you on a given card. This will affect your ability to use your credit card going forward. Moreover, it will affect your credit score.
So before you reach for the plastic, do a little soul-searching. Is what you’re facing a true emergency? In other words, is someone’s life or health at stake? If so, go ahead and use that card.
If, on the other hand, what you’re facing is merely an uncomfortable situation, but not an emergency, perhaps it would be better to stop and think things through. After all, you certainly don’t want to get in over your head with credit card debt if you don’t have to. That can get really expensive really fast.
Take out a Personal Loan
Personal loans are unsecured loans that are available to those who enjoy a good credit score based on a history of responsible borrowing. With excellent credit, you can get a low-interest personal loan to pay for your emergency.
However, while a personal loan can be a relatively less expensive form of borrowing, you are still taking on debt. And debt can be a burden on your other finances going forward. If you truly need it, however, and you can qualify for a personal loan, this is definitely a viable option.
Just make sure that you understand the terms of the loan. If you’re financially responsible, a personal loan can be a great option in an emergency.
Borrow from Family or Friends
One option that might be available to you is to ask your family or close friends to lend you the money in your time of need. This can be embarrassing to consider. However, if you are truly in need, this might be your best option.
One major benefit is that friends and family are less likely to charge interest on the money they lend you. A clear downside of borrowing from relatives or friends, however, is that it can put a serious strain on your relationship, especially if you have trouble repaying the loan. On top of that, if the person you borrow from should ever need money themselves down the road, you might not be able to say no to lending them money in return.
Redraw Your Mortgage
A redraw facility allows you to borrow money that you’ve already repaid on a mortgage. These companies typically offer variable interest rate loans. You might be able to take out a fairly large loan if you have been paying on your mortgage for a while. Moreover, this type of loan allows some flexibility with how you repay the loan.
The issue with redrawing your loan is that if you continue to borrow against the amount of money you have put toward your house, you won’t get closer to paying off your mortgage. In fact, you can actually get further away, considering the interest you will be accruing over time.
Take out a Car Title Loan
Another option when you need to pay for an emergency is to take out a car title loan. This is particularly useful for individuals who own their car outright but who do not enjoy a high credit score.
Car title loans are secured loans that are based on the value of your car and the equity you have in that car. Typically, car title loans range from around $200 to $2,000.
There are risks attached to using a car title loan to pay for an emergency, however. First off, car title loans have very high interest rates. Secondly, car title loans are secured loans that use your car as collateral. That means that if you fail to pay off your loan within the (often very short) repayment term, you run the risk of losing your car to repossession. However, if you believe this is your best option, here is a lender that provides car title loans.
Try to Stay Calm When You’re Faced with an Emergency
There are a number of options available to you if an unfortunate emergency should demand money that you simply do not have. The option that is best for you depends on the nature of the emergency, the cost of it, and your specific situation. Hopefully, the list here will help.