How To Handle A Financial Emergency
As my readership grows right in front of my very eyes, I am asked to cover different topics that are not only for those already out of debt and moving towards financial independence, but also those who have come across an obstacle in their financial life. While this post makes mention of payday loans, I do not promote or suggest using this type of financing to anyone. I do think it’s important to become more knowledgeable about what is available to you in a financial emergency and the right way to handle your money. Like everything in life make sure to do your own research and make a decision that works best for you.
There is a right way and a wrong way to go about taking out a loan. When you do things the wrong way, your financial situation will only get worse. Conversely, when you do things in the right way, you will not only get relief from all the stress of not having enough money, but you’ll gradually rebuild your financial life.
So what do you do when you need to take out a personal loan to face an emergency situation? Perhaps, your car broke down and you need to get it fixed to get to work on time and keep your job. Perhaps, your rent is due and if you don’t come up with the money you’ll be evicted.
Although you have no choice and must get a personal loan, one thing you can do is choose a payday loan alternative rather than a payday loan.
What is A Payday Loan Alternative?
Fast payday loan alternatives will provide personal cash loans and installment loans. Some may even go as high as $1250 as an alternative option to payday lending. These loans may have minimal eligibility requirements, as well as offer fast funding and flexible repayment.
Minimal eligibility requirements mean that you only need to have a social security number, an active checking account, and a verifiable source of income.
What is a Payday Loan?
By comparison, a payday loan sucks because you are charged steep fees and high interest rates.
Here are some examples:
In Alabama, interest lender rates are about 17.5%. In Louisiana, they are about 16.75 percent. In Colorado, you’ll pay 20% of the first $300 that you borrow, and then you’ll pay 7.5 percent for the remaining balance.
While you could argue that these interest rates are comparable to credit card rates, there is one huge difference—the time factor. Credit card rates may be as high, but they are stretched over the course of a year. Meanwhile, payday lenders want their interest paid within a week! As you can see, it’s not the same thing at all. Calculated over the course of a year, you’re coughing up triple-digit interest for a payday loan. You could be paying as much as 300% to 400%.
However, that’s not where your problems begin. MoneyTalksNews explains the inimical nature of getting into a rollover situation: “It’s when the loan gets extended – called a rollover – that the fees really add up. Lenders allow customers to extend their loans to the next payday if they pay the fee plus any accrued interest. The borrowers become trapped in a loop of paying fees and interest because they aren’t paying down the principal.”
How to Manage Your Money Better
After you’ve handled your emergency situation, you should get out of debt and stay out of debt if you ever hope to climb out of a recurring need to rely on borrowed money to survive. Debt will ruin your health, peace-of-mind, and any future opportunity to create a positive cash flow.
With that in mind, let’s look at the wrong way of managing your money and the right way to do it.
- The Wrong Way to Manage Your Money
When you have debts, a part of every paycheck you get goes to someone else. You can’t use your earning power to get ahead and improve the quality of your life.
There are numerous reasons why you might get into debt in the first place, but here are the two basic reasons:
- You are earning well below the cost of living. You have a job that doesn’t give you enough working hours or that pays you a low hourly wage.
- You are earning enough to meet your basic cost of living expenses but you are, spending more than you earn. As a result, when you have an unexpectedly high expense, it becomes a financial crisis.
When you constantly need to borrow money to make ends meet or because you aren’t living within your means, you start to develop a mentality of desperation. As you feel desperate, you do irrational things: you buy things that you can’t afford for psychological comfort. In the long run, this only makes your situation worse.
- The Right Way to Manage Your Money
Managing your money well is not as sexy as using a credit card to buy things you have no idea how you’re ever going to pay for. There is no gambler’s high, that feeling of living on the edge. Instead, it’s boring and unexciting.
If you’re thrilled by the prospect of managing your money well, then you are not managing it at all. You are not doing the dull, routine things necessary to ensure sound financial health.
Here are some of the things you must do to manage your money well:
- Plan a budget.
- Save a little of everything you earn and build up an emergency fund.
- Plan your expenditures ahead of time.
- Track how you are spending your money
- Avoid the temptation to buy into a get rich quick schemes as they prey on people who are eager to get ahead financially.
It’s really important to get a good grasp of how and when to take out a loan, because if you don’t get good at managing your money, you’ll end up just taking loans out willy nilly with no idea how to pay them back.