No matter how well someone prepares for lean times, life can pile so much on top of him that it’s impossible to stay in the black. Unemployment, medical expenses, emergency car repairs, and a number of other things can put a person’s financial future in jeopardy. It’s not an easy hole to climb out of regardless of how well things were going beforehand, but while it is a stressful time for everyone, it’s much easier to make it through with one’s sanity intact if he’s got a plan.
Throwing Debt after Debt
Someone who has been hit with a sudden financial crisis may be hesitant to take out a loan, but sometimes it’s smarter to replace one debt with another if it means getting proper healthcare or having a reliable vehicle. Debt isn’t good or bad; it’s a tool, and what matters is how it’s put to use.
Secured loans are a good option for anyone who has a steady source of income and something of value that can be offered as collateral. Secured loans don’t require a spotless credit score; the lender is guaranteed to make some money back if the borrower can’t keep up with the payments. That makes it a lower-risk option for the lender, and it provides better interest rates for the borrower than would be available with other kinds of loans.
Those lucky enough to hit a financial crisis with excellent credit are in a position to negotiate better loan terms with banks and credit unions. A good credit score provides the borrower with leverage, and the rates are usually much cheaper than they would be for someone else in the same situation who has terrible credit.
Payment Holidays and Financial Traps
Payment holidays allow a borrower to delay making payments on existing loans for a certain length of time, but it’s something that needs to be carefully considered beforehand. Interest still accrues during the period where payments don’t need to be made, and when payments resume, the monthly bill may be a bit higher than it was before. There may also be some fees associated with taking a payment holiday depending on the lender, but the ability to set aside the monetary equivalent of a housing payment may be just what’s necessary for a family to get back on their feet.
It’s also important to cut off things that could potentially create big problems if they’re not taken into account. Overdraft protection may be a godsend for someone who has enough money to cover the fees, but in a financial crisis, overdraft fees can add up fast. Worse still, staying in the negative can have serious implications; it can make it impossible to get a checking account for 10 years. Some financial institutions offer special accounts for people who are trying to get back on their feet after something like that, but it doesn’t look good to creditors and potential employers. Overdraft protection is one of the first things that should go during a crisis situation.
When All Else Fails, Try Payday Loans
Payday loans are short-term loans with terms ranging between one week to a couple months. They also come with extremely high interest rates, but that’s offset by the fact that these loans usually cover a few hundred dollars as opposed to a few thousand dollars. Payday loans exist for a singular purpose: to help people with no credit or bad credit cover immediate expenses when they won’t get paid until a week or two down the road. A payday loan is ideal when someone’s job is on the line and his car breaks down. He may have to give the entirety of his next paycheck to the payday loan company, but at least he’ll actually get a paycheck instead of getting fired for not showing up.
Payday loans should never be used to pay down other loan debts. It’s okay to use them for rent, groceries, and insurance deductibles, but recurring expenses that routinely cause problems are bad reasons to get payday loans. The borrower needs to be sure that he can pay off a payday loan when it’s due, because his overall situation will only get worse if he can’t.
At the End of the Day, it Comes Down to Common Sense
The best strategies are doomed to fail if they’re not backed with sound financial choices and good monetary habits. The focus shouldn’t just be getting out of the hole but doing everything possible to ensure that another hole never gets dug. As long as someone can keep his wits about him throughout the crisis, he’ll see better times in his and his family’s future.
About the Author
Phillip Bryan blogs about loans and other financial matters. If you are in need of a secured loan, Net Loans can offer one tailored to your specific needs.