3 last-minute solutions to deal with emergencies

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I went there, I did this, I got the invoices for the overdraft fee. I know some readers will despise me for my poor financial planning, but many others will experience this nauseating and shipwrecked feeling all too well when the realization comes through: This month’s money simply won’t last. not until payday.

It’s human to panic in such situations, but panicked people often make stupid choices. The first things to do, therefore, are to sit down, calm down and think about the situation. Here are three options that may be open to you, depending on your personal situation:

1. Borrow from friends, family or your employer
This might be the most embarrassing option, but it’s usually the one that makes the most financial sense. Maybe mom and dad’s bank is open, or you have an irritatingly successful sibling or a generous close friend. And, if you are fortunate enough to have a sympathetic and grateful employer, an advance on your salary may be available.

Yes, I know, there is a lot of pride in swallowing such a request. But these short term loans are often interest free or very cheap, so they are usually the fastest way to get back on your feet.

2. Pursue an overdraft line of credit
This might be your next best option: you agree with your bank on a limit up to which you can overdraw your account – and for what price. But there are three things to remember:

  1. You have to stick to your limit.
  2. The bank may – but not always – charge a modest annual fee for this service.
  3. You have to pay interest, although the APR is often within the normal limits for a credit card.

Sounds good, eh? The problem is, banks hate lending to people who need to borrow, and you can be turned down if your credit isn’t good. If you’re turned down and think one of them would be right for you, don’t forget to set one up the next time your financial affairs are in order.

Do not confuse overdraft lines of credit with overdraft protection programs. You have to go for the latter these days, but all they do is give your bank permission to pay checks or debit card fees when you don’t have enough funds. You still risk paying outrageous fees ($ 35 is not uncommon) for every such payment. If you’re already struggling to make ends meet, this won’t help.

3. Consider the absolute last resort
There may be circumstances in which a payday loan is a reasonable choice. There, I said it. And I hate myself for doing it. These lenders are often predatory, and many people who promise to only have a small loan for a few weeks find themselves caught in a never-ending cycle of debt at horribly high rates.

In fact, The Pew Charitable Trusts calculates that the average borrower spends five months a year carrying this type of debt. And consumers in states that haven’t completely banned this form of lending – or capped the interest rates that can be charged – are clearly being scammed. In Idaho, the average APR is 582%, according to Pew’s April 2014 report.

And yet even that rate on a small amount over a short period can sometimes be cheaper than being hit with overdraft fees or paying to have your electricity reconnected. If you borrow $ 100 for two weeks, the cost at 582% APR would be around $ 22.35. The cost of a few bad checks could be $ 70, and some utility companies charge $ 50 or more to reconnect you.

Please don’t go into payday loans unless:

  1. You absolutely have to do this – it usually means your credit history leaves you with no other borrowing options – and it makes financial sense in your situation.
  2. You know for sure that you can pay it back on the due date – and that you won’t be back for another loan next month or anytime soon.

From now on, I’m going to have sleepless nights worrying about encouraging a reader into a spiral of declining debt and misery.

Tackle the real problem
These three solutions are all short term solutions. To really fix your problem, you have to ask yourself why you are in this mess.

Maybe there was just one problem (a spell of unemployment, poor health, or short working hours) that is now in the past, and your finances will soon be healthy again. Once you’re back on your feet, don’t forget to find the best high-yield savings account you can and replenish your fund for those rainy days.

But maybe the problem is structural: you just spend more than you earn. It was my problem.

My solution? Create an appropriate family budget. Spend a few months writing down every penny you spend, then analyze where all your money is going. Find savings and implement them. If you really can’t find enough to balance your books, it’s time to talk to a reputable credit counselor.

There is almost always a way forward. And finally (or maybe soon) a month should arrive where you don’t have to worry about earning your paycheck in the last week or two, and all that stress is going to be in the past forever (or then you can hope). When that time comes, remember how easy it is to get into trouble, and don’t start looking down on those who are still struggling.

This article Latest 3 Solutions to Cash Emergencies originally appeared on Money Blue Book.

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How to help a friend in financial difficulty (without spending a dime)

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