Unexpected financial emergencies have the tendency to hit you when you are least prepared. This happens even to those of us that are most knowledgeable and disciplined in personal finance. This is therefore not the time to beat yourself up mauling over what you could have done to avoid the emergency.
Instead, you need to create a strategy to pull yourself out of the financial crisis. There are various plans of action you can take to achieve this. You may choose to cut down on your expenses, find a way to increase your earnings or combine the two. Here are a few tried and tested strategies you can apply the next time you are faced with a financial emergency.
Getting a fast loan
If you need money to solve your current emergency, getting a fast loan is one of the go-to solutions. You can get the loan from your local bank, pawn shops, or even online. Considering your current financial situation, it is important to negotiate for the best loan terms so that you don’t struggle to repay.
Sometimes, however, you may not qualify for loans from such lending facilities e.g. if you do not currently have a verifiable income.
In such situations, you may consider asking for a quick loan from friends and family. Ensure that you repay the money in good time to avoid straining your personal relationship. If there is a genuine reason you can’t repay in good time, explain yourself in good time.
Whether you are borrowing from a financial institution or from relatives, it is always important that you don’t borrow more than you need. Borrowing a lot of money may hinder your efforts to get back on your feet.
Refinancing your home or car
Monthly deductions for servicing a mortgage or car loan can be quite high. If these deductions prove to be a burden when you have a financial emergency, you can resurface the car loan or mortgage.
Refinancing a loan, however, is a delicate process. You should carefully compare the terms of current to those of the new loan to confirm the new one is beneficial.
For maximum benefits, refinance your car loan or home mortgage:
- If your credit score has improved thus allowing to get cheaper loans
- If the new loan can be spread over a long time resulting in cheaper monthly repayments
- If the new lender or loan offer has lower rates
- If new loan offer is amortizable
- If interest rates are lower than when you got the loan
Get a side gig
You have done your best to cut down on all your expenses. Next focus is on increasing the income and side hustles are probably the best way to earn more.
The beauty of side hustles is that it doesn’t have to be in a formal workplace. In fact, you can start a small business and serve your clientele after your regular job. There is, therefore, a lot of flexibility allowing you tap into your passions and venture into the travel, art, fashion or similar industries. You can even turn your passion into a blog!
The amount you earn in your new hustle may not be a lot at a glance but come end month, you will surely notice the impact. The long term benefit of the extra money can only be realized if you exercise financial discipline. If you spend recklessly, you will just end up with extra working hours and fatigue without the money to show for it.
Instead, you should plan for the money as you do with your normal salary. Designate the money to specific purposes such as repaying loans or saved to your emergency account. A side gig is one of the best ways to get your way through the unexpected financial emergencies that life throws your way.
Selling items online
This may come about part of side hustles but it has become such a major channel of making money that you can depend on it solely without a regular job. Technology has made it easy for you to market, sell and ship items to customers all over the world.
Starting a major online retail business might be beyond your financial capability if you are already in a personal financial crisis. If you do not have the capital to purchase a stock, you can use social media and other apps to sell some of your belongings. Pairs of shoes you don’t wear anymore, clothes, jewelry, furniture or electronics can fetch you a substantial amount of money.
Alternatively, you can make homemade jewelry, clothes, pieces of art, or similar items and sell them online.
You can do this as a part time or full time job. Also, you have the choice to do it till you find your footing again or pursue it as a long-term venture.
Having a backup credit card for just emergencies
This is more of a precautionary step that you can take to cushion yourself in case of a financial emergency. Credit cards have replaced cash money almost completely. If you are one of those that solely use credit cards, it can be very inconvenient if you lose it or in a situation where you can’t use it.
Although many companies replace the card within two or three days, there are some instances that can’t wait e.g. when you are traveling. A backup credit card can be a great savior in such situations.
Having more than one credit card has other benefits:
- More credit card benefits
- Your credit limit increases
Financial experts always emphasize the need to prepare for future emergencies. However, sometimes things go wrong despite practicing your best tactics. You should therefore be ready to such eventualities by setting up an emergency fund.
The first step is always to evaluate your financial situation. It will guide you to decide your next course of action. For instance, is the emergency fund sufficient to solve the emergency? If yes, that’s good.
If not, you need to find a way to raise the money by taking a loan or borrowing from people close to you. From your evaluation, you will be adequately informed to decide how much you need. Don’t ask for more than you need because repayment might overwhelm you.