Unexpected home or car repairs, job loss, or bills may leave individuals and families struggling to cover expenses and rearrange their budgets. Emergencies can strike at any time, so it's essential to have a plan to help you get through difficult financial circumstances. Financial tools like emergency funds, personal loans, and credit cards can help you access the funds you need at short notice. Here are a few tools to consider, whether you’re in a financial bind or aiming to avoid one.
Personal Loans
Many lenders, including online lenders, banks, and credit unions, offer personal loans. The application process is usually simple; you'll need to fill out a form and provide supporting documents for your application, such as a government-issued ID, proof of income, and address. Because personal loans are processed quickly, they're a great tool to fall back on in a pinch. Better yet, they’re easy to repay in monthly or biweekly installments. Consider using a personal loan to cover a large, one-time expense, such as a home repair or medical bill.
Credit Cards
Credit cards can help you cover immediate expenses easily and effectively during a financial emergency. Though it may depend on how much money you need and your borrowing limit, these financial tools are generally useful for paying bills and making purchases. But if you intend to spend a large amount that may result in carrying a balance, it may be wise to consider a personal loan instead. High credit card balances may negatively impact your credit if you can't repay the money soon.
Emergency Funds
Many people rely on emergency savings to get them through a difficult time. Financial experts recommend setting aside a few months' worth of expenses in a savings account so you're not scrambling for funds in an emergency. You can use this money in unexpected situations like medical emergencies, unemployment, or repairs.
Secured Loans
While personal loans are a safe and prompt solution for many financial emergencies, not everyone may meet eligibility requirements. A secured loan may be the next best option if an unsecured personal loan is out of reach. These loans are backed by collateral you own such as a house, car, antique item, or electronics, making them less risky for lenders and potentially offering lower interest rates.
With a secured loan, the lender may offer you an amount worth a percentage of your collateral’s value. Then, you can repay what you owe all at once or over time, depending on the loan terms. Keep in mind that defaulting on the loan can mean losing your collateral, as your lender may repossess and sell the item to recoup the loss.
Budgeting Apps
Technology has revolutionized the way we manage our finances. With budgeting apps that you can download to your smartphone or tablet, you can track your spending, create a budget, and set savings goals. These apps provide an overview of your financial state, enabling you to make informed decisions and avoid unnecessary spending. Even when you're not in a financial pinch, a budgeting app can help you save money regularly so you're better prepared to deal with any money issues that may come up.
The Bottom Line
Avoiding a financial bind is possible with the right tools at your disposal. Consider building an emergency fund, getting a budgeting app, and using a personal loan, credit card, or secured loan as needed. Utilizing these tools can put you in a better financial position so that you can handle unforeseen situations with more confidence.
