Why You Need an Emergency Fund

You’ve heard about putting money away for a rainy day, but the fact is many people are ill-prepared when emergencies arise. Events such as car repairs, home repairs and medical bills can easily run into the thousands of dollars, draining your account and leaving you with nothing left. If you have little to no savings, finding a way to pay for these unforeseen expenses can be challenging. Fortunately, there are several options you have available.

Personal Loans

Personal loans are a good option for those who have good to fair credit. You can finance them through your bank or an online lender, many of whom now have options for easy personal loans, so you can get the money you need and quickly. The good news is these types of loans typically come with favorable interest rates and repayment terms that you can adjust to fit your budget. It usually takes a few days to get the money delivered to your bank account after approval, so it’s not the quickest option, but it’s definitely one of the most affordable.

Credit Cards

Credit cards often come in handy for emergencies, and this is really the only reason they should ever be used. Depending on your credit line and usage, you may opt to take care of your expenses this way. However, it’s worth bearing in mind that credit card interest rates tend to be much higher than personal loans and if you don’t make more than the minimum payment each month, you’re looking at paying hundreds, if not thousands of dollars in interest. If you can, make more than the minimum payment each month to ward off the high interest rates and save money.

Payday Loans

If you’re really strapped for options, a payday loan can help you get these unexpected expenses under control. They’re relatively easy to get because they’re based on your income and the lender will take money out of your account automatically each week, biweekly or monthly depending on your lender’s terms. The downside to payday loans is that the interest often accumulates faster than you can tackle the principle of the loan, so you may be left paying them off for several months or even years.

Friends and Relatives

A final option if the loans and credit card routes don’t work for you, is to borrow from friends or family members. There are pros and cons to this method. Money tends to be a touchy subject and it’s not uncommon for it to cause fights, particularly if you default on the loan. If you do opt to borrow money from friends or relatives, then it’s important that you honor it like you would a traditional loan. Get the details in writing and include the payment terms as well as interest. Make your payments on time each month and pay more when you can to show good faith.

While it’s always a good idea to build up a nest egg, sometimes it’s just not possible. Life events tend to pop up at the most inopportune times, but the good news is there are plenty of lending options available to help you cover emergencies and unexpected expenses.