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Savvy Finance

How To Survive A Financial Emergency When You Don’t Have Savings

We all know we should have a safety net of emergency savings in case of unexpected financial problems. Despite this, it’s not always possible to have savings if you’re living from paycheque to paycheque, and a lot of people don’t have savings. If you’re hit by a financial emergency without savings, there are some things that you can do, such as cutting back household expenses, withdraw money from the bank, or delay bill payment. But what if you do all of those things and still don’t have enough money to get through the problem? Here are some ways to raise quick cash to get through a financial emergency. 

Ask Family For A Loan

Asking a wealthier family member for a loan but sound like the worst idea, and like the last thing you want to do. But if your aunt, brother, or mother has the extra cash available and you’re willing to take the commitment very seriously, then it could be a win/win. The success of this strategy will hinge on fist being able to communicate openly and then on your ability to keep up with your agreed payments. 

You should start by explaining your situation in clear, honest terms to your relative, and then pitch them with a very specific proposal. This proposal ought to include the amount that you would like to borrow, the interest rate that you will pay, the monthly payment amount you will make, and the length of repayment. You can use a loan calculator to crunch the numbers. 

You should be open to negotiation. If your mother has her money tied up in 4% tax-free bonds, for example, then you should be prepared to pay at least 5% or 6% so she feels good about the deal. Make sure that you keep up repayments in order to maintain the relationship and not create ill-feeling. 

Use Credit Cards

A credit card can sometimes be used to finance an emergency too. If you have really good credit, then you could see if you can open a new card. In situations like this, the best credit cards will be ones that offer a 0% interest purchase or balance transfer offer. You will then need to make regular payments to pay off the balance before that 0% offer runs out. 

If you can’t get a credit card with a 0% offer, then keep the new credit card debt separate from your other balances. By doing this, you can keep track of your repayment progress much more easily. 

If You Own A Home, Get A Home Equity Line Of Credit

Home equity lines of credit, or HELOCs, usually have low-interest rates because they are backed by the equity that is in your home. They will usually have flexible repayment options, including interest-only payments. The bank will order an appraisal on your home, but the rest of the account-opening process should be fairly quick and simple. 

If time is a factor, then you could charge the expense to a credit card, and then transfer it once you have your HELOC approved. You can make interest-only payments to your HELOC, but you shouldn’t. Cut back on other household spending, if you need to, so you can pay off this new debt as quickly as possible. 

Refinance Your Mortgage

A cash-out refinance will replace your original mortgage with a new loan that will allow you to tap into your home equity. Your new loan will be higher than what you owned on your mortgage before, and you will get the difference (minus closing costs and fees) in cash. This option could mean that you can refinance your mortgage at a lower interest rate. You can then use the money that you get to cover you for a financial emergency. 

To be eligible for refinancing mortgage or, a cash-out refinance, you will need to meet the qualification requirements of the lender and have accumulated some equity in your home. You will also be able to take advantage of increased equity due to a rise in your home’s value. 

In most cases, you can only take about 80% of your home equity, although FHA loans and VA loans might allow you to take more. 

The balance on your new mortgage will be more than the previous balance because the amount of equity that you cash out will be added onto your balance, as well as any other associated costs. In fact, the fees on cash-out refinances can often be daunting. For example, if you choose to refinance to a $350,000 loan, and the closing costs are calculated at 5%, another $17,500 would be added onto to your debt. 

Sell Your Old Electronics

Do you have an old mobile phone or tablet gathering dust in a drawer? It might actually be worth something. Even old PCs, eReaders, or games consoles might be worth something. There are lots of places online to sell old electronics. Do a search and get a few quotes to see where you could get the best offer.  

You won’t raise a lot of money by doing this, but every dollar can count when you’re in the midst of a financial emergency. If you’re struggling for money, dig through the cupboards for old electronics and see what they’re worth. You can also make a little bit of extra money by selling things like books, DVDs, or games online too. 

Get A Small Personal Loan

There are lots of websites that offer small personal loans that are funded by individual investors. These loans come with fixed interest rates and repayment schedules that usually range from three to five years. Your interest rate could range from anywhere from 7% to 35%, depending on what your credit score is like, and on the amount of money that you need to borrow. It doesn’t hurt to get a quote and then compare this rate to credit cards and other debt options. It may be cheaper in the long-term, but make sure you have read the fine print carefully and understand exactly how much you will need to pay back. These sites can be an option when a bank loan isn’t. 

Ask For Donations

There are some very common causes of financial emergencies, and they almost always involve unexpected expenses, such as a sudden loss of income or medical expenses. Both of these situations are very relatable to a lot of people, and you may find that your friends and family might want to help you get through the problem. This help might come in the form of some kind words or advice, or they might offer you some financial help.

If you think you might have people who want to offer financial help, you can make it easier for your support group to donate to you by setting up something like a GoFundMe page and sharing it on your social media. 

Address The Emergency, Recover, Then Build Up Savings

It might seem impossible now, but you can get through a financial emergency. Tap into whatever available credit that you have, sell some of your old things, and ask your friends and family for some help. Once you have got a recovery plan in place to get you through, you should shift your focus on saving for an emergency fund. If you can build up some savings, you will have a financial cushion in case an unexpected expense happens again. Savings are important to have to protect you in times like this.

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