Arranging emergency funds often take a toll on your finance management, savings and well being, which you understand late. And by the time you know this, the damage is done too far. Hence to understand the gateways of sudden emergency fund seeking, and how you may get into the trap will help you manage your finances better and avoid such pitfalls.
Why may you have to arrange cash in a short time?
You get into emergencies when you need extra money for some sudden thing. It may be an accident, an unexpected medical emergency where the medical insurance is also falling short, or some other crises when you need the money instantly within a day or hours, and you feel paranoid to arrange it. Somehow the brain often does not work, and logic does not support in such cases when you end up taking hasty decisions like opting for a cash advance from a credit card or taking a payday loan and something like this.
Instant money comes definitely like a great relief, and little do you think at that time that you will later have to pay back a lot more than you have taken just because of the high rate of interest that will be charged on that loan every day. But it happens in reality. And soon the truth dawns on you. You realize that you are paying a considerable amount for the loan payback each month, and much significant an amount which you are struggling to afford. That is why you must take steps carefully so that you may have some funds for the emergency, and save yourself from making such sudden loans.
Loans often land you up in trouble unless planned
Loans are taken in two situations. One is expected, and another is unplanned. When you take loans with planning, you take it upon lots of calculations. You plan a lot, think a lot, and you know from which source you are taking the loan, how to pay them back, and how to make the best out of the deal. You even compare rates and quotes and then choose a lender. And also you have proper plans to pay back the loan, which never lets you make mistakes you repent on later. Exceptions do exist, but in generally planned loans often are a safe play.
Unplanned loans are undoubtedly troubled inviting elements. When you take a sudden loan, a payday loan or credit card cash advance, or punch the credit card for a big loan, then you bring in lots of trouble by not calculating the high-interest rate which will be charged on the amount borrowed. Typically credit cards charge quite high. And payday loans charge even higher. And these rates of interest are 5 to 10 times more than the market standard for simple personal loans.
How to avoid taking emergency loans?
You can avoid taking loans in an emergency by planning for emergencies beforehand. This does not happen in one day though. It’s a result of long-term planning. When you save funds for the emergency out of your regular monthly earnings, then a month on month of emergency fund building creates an excellent fund. And then you can use that fund to cope up on emergencies instead of taking a loan. However, if you don’t have an emergency fund, then you will have to take a loan. And often such loans can later strangle you when your earnings are not enough to squeeze out the loan EMI from them.
How can you feel trapped in loans?
Loans are competent to handle as long as you can handle them without taking any financial pressure on you. But when you feel pressurized to pay the loan EMIs, and when you feel that the payment of loan EMIs either bars you from saving money and taking out monthly expenses or you cannot pay the EMIs after taking out monthly expense, then it’s a pressure situation. And such pressure can suffocate you so much that you would soon realize that you are in financial trouble.
Missing the payment dates are the first signs of trouble. This means you are either in too many loans to keep track of, or you are short of funds to pay on or more EMIs. And this state can drag on and on month by month to create a huge vacuum. Compounding penalties on late payments and the penalties from missed payments, all can pile up to form a huge due, and on the other hand, the missed and late payments can affect your credit score highly and reflect all that on your credit history.
How to get out of a bad credit situation?
To get out of a bad credit situation, the best you can do is get all the loans consolidated into one loan so that you can enjoy the relief of a lower rate of interest which reflects on the lower manageable EMI. A loan can be made manageable and affordable when the installments are affordable whatever the tenure is. And installments get manageable in two ways. One is to get the tenure longer, and the second is to get the interest rate lower. Either or a combination of both can reduce the EMI and make things more affordable for the common man with average income. And that’s why the option of refinancing the single high-interest loan or consolidating the multiple high-interest loans into one, is always working and helpful. You can get a good idea of how debt consolidation works by helpful resources on internet.
Finally – managing finances
Consolidating loans, settling or refinancing, all our ideas to make the debt manageable and affordable, and get out of the financial pressure of debts. But the best thing that can be planned is to get into no debts. And if you never get into borrowing, you will be much happier. Else there are still smart ways to get out of the pressure and bring expenses and finances to track.