Ways To Avoid Emergency Loans
Emergency loans like payday loans can be a real asset in an emergency but they should be avoided when possible. The high fees can do a lot of damage to your available income in the short term. So, the best option really is to avoid them if you can. Here are a few ways to do just that.
Live Under Your Means
You should not be spending every dollar of your paycheck each month. People like to live beyond their means and it winds up getting them in trouble. If there is a hiccup in their income or if an emergency comes up, there is no cushion in their paycheck to handle it. You should instead live lightly below your means. This will allow you to have reserve money.
The first thing that you need to do to set your budget is to write out all of your expenses. Use a notebook or even better, a spreadsheet program to list all of your expenses. Once you have all of your expenses laid out in front of you, you can see where your money is really going. Ideally, your bills and all other expenses should be less than 80% of your take home pay. This will give you a nice cushion that you can use to pay for emergencies or invest. If your bills are more than 80%, you need to make some cuts. This could be moving to a cheaper home, cutting entertainment expenses or just shopping for cheaper electric provider or insurance companies.
Maintain Your Credit
A strong credit rating can give you much better loan options in case of an emergency. The difference between a 600 credit score and a 700 credit score could cost you hundreds of dollars in interest. In addition, many loans may not be available to you at all with a low credit score. This is why those with poor credit often have to settle for emergency loans in the first place.
Your first step towards having a good credit rating is to know what your score is and what is on your report. Open an account with a free service like Credit Karma and know exactly where you are at. Dispute any information that you think is incorrect and then go about making improvements to your score.
To maintain your credit, you need to above all else, pay your bills on time. This is about 30 to 40 percent of your credit score. If you have a late pay, hope is not lost, just keep paying on time and eventually its negative effects will disappear. The next biggest factor in your credit score is the amount of available credit that you have. You want your card balances to be below 3o percent ideally but if you can not do that, the lower the better.
Start A Killer Savings Account
Everyone should have a savings account but there are so many people that have failed to save even a few hundred dollars. This is a huge mistake because a well stocked savings account is the financial safety net that you need. It can provide you the money to pay for emergencies and keep you from taking out costly high interest emergency loans. The best way to save is to put money into savings that you either never see or wouldn’t have otherwise had. Here are some examples.
Auto Deposited Money
If you get your check direct deposit, you can have your employer directly deposit money into your savings account every payday. If they do not offer this service, you can setup automatic deposits to your savings account from your checking account on your payday. What you do not see, you will not miss and even something as little as $20 a month can really add up over time.
Save Your Change
Change adds up in a hurry. Throw it in a jar and once every few months, take it to your bank for deposit. Tons of banks now have coin counting machines that will allow you to easily cash in the coins, no wrapping or manual counting involved.
Clipping coupons is just about the last thing that I like to do but if it serves a purpose, the activity may become more palatable. after you do your regular grocery trip, take the money that you saved from coupons and deposit it into your savings. This is money that you would have otherwise not had and won’t miss. Seeing your savings grow every month will be motivation to keep it up.
Be Prepared For Emergencies
Being prepared for an emergency can help you avoid high interest emergency loans. Here are some things that you can do to get prepared.
Have Health Insurance
Health insurance will help you pay for those outrageously expensive emergency room visits. If your employer does not provide it, you should look into getting it yourself. Even a disaster plan that only helps you pay for major medical issues can be advantageous to have. Besides that, you can also look for another job that actually does offer benefits because you are much better off with a group plan than a group plan that you pay for yourself.
Have Full Coverage Car Insurance
If your car is paid off, you may be tempted to get liability insurance only but this is a mistake. Full coverage will cover you when you get hit by someone who is uninsured or if you are in an accident that is your fault. If your car were totaled, could you afford to buy a new one? If not, you should have full coverage insurance. You might be surprised at just how little extra a month it costs and it can be a real life saver.
Have An Emergency Credit Card
An emergency credit card that you do not use can be an asset. Credit card fees can be quite high but not as high as the fees from a payday loan. Be sure to leave the card at home in a safe place. Do not carry it with you or you might be tempted to use it for other things. This should be for emergencies only. Also, it should be one without an annual fee so that it does not cost you anything to hold although you may have to use your card once a year just to keep it active. Some issuers will close inactive accounts.
Have A Good Support Network
You have friends and family but if you want them to be there for you, you need to be there for them first. Always be the person willing to help out others and people will rally around you if you ever have an emergency. Friends and family can help you with money, rides to work and a number of other things so they are good to have.