How to Best Prepare Your Finances for An Emergency

Job loss, a health crisis, car problems, or even a sick pet are all examples of emergencies that may crop up and require you to spend a few hundred or a few thousand dollars. It’s best to plan ahead so you know what the alternatives are if the crisis happens. You may have a few options.

Create an Emergency Fund

Ideally, you already have an emergency fund. This is savings that you can get to easily that usually amounts to about three to six months’ worth of your income. If you don’t, you can move money from other investments into a more liquid form so that you can easily access. If you don’t have enough in savings or assets to do this, you should start saving towards this necessary account now. You can have a portion of your pay automatically diverted into this account each month until you have an amount saved up that feels secure. If you are struggling to achieve and need to find different sources, there are other ways to do so as well.

Take Out a Personal Loan

Going into debt is usually not a good idea, but if you have an emergency and insufficient savings, a personal loan may be the best way to deal with major life expenses, and there is also less risk with this type of loan since you are not putting up any kind of collateral. Online lenders, banks and credit unions may all offer personal loans. In addition, if you have been with your bank or credit union for a long time and have good credit and a good relationship with them, you can try this in-person option. However, the application and approval process with online lenders may be much faster, and you might even get a better interest rate than you would with a brick-and-mortar lender.

Find Out About a Payment Plan

In some cases, the provider that you are getting the emergency services from, whether it is a mechanic, a doctor, a dentist, a vet or someone else, may offer a payment plan. It is generally worth asking whether this is available. If you have done some research ahead of time and have a sense of your other options, you may be able to evaluate whether the interest rate and other terms of this plan are favorable or not.

Credit Cards

Credit cards are generally not a financially savvy way to deal with emergencies because their high interest rates could leave you struggling with debt later on down the road. However, sometimes you have no choice. If you have to put an unexpected expense on a card, there may be ways to ease the burden of the repayment terms. You can search for offers that have promo rates of 0% interest for a certain period of time, typically 12-18 months. This way you can divide up the balance across the entire promotional term, or if the purchases are on an existing card, you can transfer the balance to the new account.

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