By Paul A. Achoa –
In general, you should avoid payday loans unless you are in a serious financial emergency. This is because these loans charge high-interest rates (many charge an APR in the neighborhood of 400% or even higher). They also usually require full repayment within a couple of weeks.
In most instances, you will have other available options that are a whole lot cheaper and have much more favorable repayment terms.
Planning for Emergencies
It’s not ideal to take on fresh debt every time a new emergency expense pops up isn’t ideal. Sometimes, however, it becomes unavoidable. Once you’ve found the most favorable option for your individual situation, be sure to make a plan to pay money back as soon as possible. Then take some time to make a plan for dealing with future inevitable emergencies.
Although it’s not possible to predict when an emergency will happen, so the sooner you start preparing, the better.
The best way to prepare yourself for future unexpected expenses is to establish an emergency fund. This can be done with a regular savings account, and many banks may allow you to open a separate account, so your savings won’t be mixed in with other money you have decided to set aside for the future.
Once you have your emergency savings account, set a goal to deposit a certain amount every single month. Depending on your individual budget, that may not be very much, but even a little money can make a significant difference when you need it. And if there is any available room in your budget to cut back on some spending, it may be worth doing so to establish a safety net. You can then use these funds if you ever lose your job, need to pay for car repairs or suffer an illness with high medical bills.
Building Up Credit Can Also Help
As you work on creating your emergency fund, focus on building up your credit history. Begin by checking your unique credit score and by reviewing your credit report to find out where you stand and which specific areas could use some improvement.
For instance, if you are behind on certain accounts, try to get caught up as fast as possible and focus on paying on time going forward. If your credit card balances have gotten high, focus on paying them down if you can. Also, if you have applied for a lot of credit lately, consider taking a break.
As you take steps to improve your credit, you will have more available options in the future if you need to borrow cash for an emergency or anything else.