As an increasing number of Americans are forced to live paycheck to paycheck, many are unable to save even enough money to cover a typical emergency expense. Things like a car breaking down or a child’s sudden medical costs can quickly leave families and individuals without enough to get by. Fortunately, even for those with few savings, there are a number of short-term options for coming up with quick cash. In this article, we’ll explore a few of the ways in which an emergency cash crisis can be solved, allowing someone to avoid going without food, heat or other basic life necessities.
Short-term loan types
There are quite a few types of short-term loans that allow people access to significant amounts of cash on short notice. Such easy cash loans are available through lenders who typically require the borrower show proof of steady income in exchange for a lower standard of credit standing. The caveat is increased interest rates, requiring borrowers to be especially coordinated when it comes to paying such loans back on time and in full.
Another option to drum up some short-term emergency funds is through an automotive title loan. The upside of title loans is that, like some unsecured loans, they are often available without the borrower’s credit history ever being checked. Also, because title loans are tied directly to the value of the borrower’s car, they may be available for much higher amounts than other loan forms.
The drawback of title loans is that they are secured debt, using the borrower’s car as collateral. In theory, the borrower can take possession of the car and sell it at auction if the borrower doesn’t make their scheduled payments. In practice, however, title loan companies rarely take possession of vehicles, opting instead to work with the borrower to ensure that they are able to pay the loan back.
It is important to understand the principles behind responsible borrowing. Most personal finance experts recommend that people spend no more than 36 percent of their total income on the servicing of debt payments. This would include the sum of all principal, interest, and fees associated with outstanding loans. It is also generally recommended that no more than 28 percent of one’s total income be spent on housing costs. This can include mortgage payments as well as rent. Most finance experts would include rent in the definition of debt for purposes of these calculations as it is an amount that is owed every month.
These numbers have been determined by vast amounts of real-world data, and they should be taken seriously by anyone seeking to handle their finances responsibly. Individuals or families whose debt service payments exceed 36 percent of their total income put themselves at ever higher risk of insolvency, a situation that can have profound consequences on personal finance for decades.
However, sometimes those rules need to be bent due to emergencies. Even if you must take out loans that will leave you spending more than 36 percent of your income on debt service payments and housing costs, it is imperative to pay those extra debts down as quickly as possible.
It is generally not the challenge of paying back a small loan itself that causes people to become financially distressed, but instead, it is usually the rolling over of these loans and the resulting accrual of large amounts of fees and interest payments that can ultimately bring on financial catastrophe. Such a situation then goes on to affect our lives in a negative way. It’s therefore imperative for those borrowing in a financial emergency to have a firm grasp of the situation and a surefire plan going forward.