Few people would be fortunate to get through life without unexpected financial burden, yet so many are unprepared. CNBC recently found that just 40% of people could pay an unexpected $1,000 expense, such is the state of the average American’s emergency savings. For these situations, most will need to turn to short-term credit options. Doing it smartly will save a lot in the long run.
Pick the best product
The most easily attainable form of short-term money is most likely credit. Borrowing from the bank is set to get easier this year, as the Fed have eased lending rules, according to Bloomberg. There are therefore lots of options, and so choosing wisely is important. Look for what you need to cover the shortfall and then zero in on the most competitive product. You may be able to secure quick approval, interest-free periods or even cashback for certain purchases. Don’t be scared of personal loans, as a well-managed one will help your credit score in the long run and give you the financial relief you need in the blink of an eye.
Aim for the lowest interest rates
You should address your emergency expense as what it is – an expense. Were it a month later and you had more of your pay check available, it would be wise to curb other hobbies and pursuits and simply divert all of your funds into the emergency. When borrowing, translate this to a short loan duration. Aim to pay it off as comfortably and as soon as possible. Doing this will often reduce the interest rate, meaning you pay less in the long run.
Try not to borrow to pay it off
Pay your credit off as soon as possible. When you find yourself a little short on cash and hating the repayments, it can be tempting to look at a balance transfer, or re-consolidation. If you don’t absolutely need to, don’t take out further credit products. According to National Debt Relief, up to 85% of indebted persons lived in perpetual debt, where their repayments went over their income and ability to pay. This is a very real risk that can wreck your credit score and keep you in a futile situation. Look to pay it off first time.
Credit is a useful thing for emergency expenses. Many Americans have direct need of it, due to across the board low level of savings. However, don’t use it as a crutch; take the advantage it provides, and then assertively get it paid off. You’ll have yourself to thank later down the line.