If you have no money in your current account and have to deal with an unexpected expense, it can be a tough spot for you to be in. This is not a very uncommon story.
Just when you think that your finances are in order, the car may break down, there can be a medical expense in your family or another major bill that you have to pay up immediately.
What can be the best way to get funds if you don’t have any money on you?
Given below are some of the best ways to handle your unexpected expenses:
- 1. Use Your Savings
If you do have some money saved up then the best option would be to use it. The major benefit of using your savings is that it would be your money and you will not have to pay someone else for using their money. What this means is that the only thing that you will be losing out is the interest from your savings account which will not be as high as the interest that you will have to pay when you borrow money from other sources.
Before you do withdraw money, you should find out whether you will have to pay a penalty for withdrawing the money. This can be an issue if your savings are in a regular savers account on a fixed term account. You may have to pay penalty and in that case it would be best to use a credit card or an overdraft facility if it is interest free.
However, the charges for these must be less than what you would be losing out on the interest. If you do have savings but not enough then you can combine the savings and one of the below mentioned methods to reduce the overall borrowing cost.
2. Cut the Outgoing Expenses
If you have an unexpected bill to pay then you may want to consider sacrificing on the little luxuries in life for the time being. Most of us earn more than what we think. This often includes paying for GBP 2 for a takeaway coffee every single workday which can easily add up to a substantial amount each month.
You can also switch to a free view package on your digital TV rather than one of the top end packages to save as much as GBP 50 each month. Switch your energy supplier, check the insurance products and hold the reins tighter on your supermarket shopping to reduce your expenses.
If you have been paying more on a loan or on mortgage to get rid of your debt quicker then it would be a good idea to temporarily stop or reduce it. You are not committed legally to make overpayments so you may want to start paying more once your expenses are dealt with.
3. Credit Card
The options that you will have will depend on the kind of credit cards that you currently have. It will also depend on whether you would require cash or if you would be able to settle your expense with a credit card and how soon you will have to settle your expense.
Avoid withdrawing cash using your credit card since it will turn out to be very expensive.
There would be a very high interest rate and a cash advance charge. If you have to pay your expense in cash then use your overdraft facility if you have enough limit and if your charges are considerably lower.
If you can pay using your credit card, then some of the 0% rates that several credit cards offer on purchases can be a very cheap way to handle unexpected expenses. If you are still within the introductory period or if you can apply and wait for a card that has a 0% offer for purchases then it would be possible to pay off your bill without any interest expenses for the short term.
Another alternative is that you can pay with your existing card and them transfer your balance to another cheaper card. There are several cards that offer low interest or even 0% interests on their balance transfers which can be very useful.
No matter what you decide, you must ensure that you will be able to afford your minimum payments each month and pay off the full balance before the 0% offer ends or transfer the balance to another 0% credit card.
4. Use Overdraft
An overdraft would be able to provide you flexible borrowing and is quite suitable for handling such unexpected expenses. If you do have an overdraft that is interest free with sufficient balance, then it would be a good idea to use it rather than some of the other borrowing means.
If you intend to do this, you must also come up with a good repayment plan so that you don’t have to be in debt for a long time. Most overdrafts will charge an interest amount on any amount that you borrow. If you have more than one accounts, check the interest charges for finding the lowest possible rates and then use it for withdrawing money.
If your overdraft level is not really enough then you can also approach the bank and request for an increase. An advantage of doing this is that for most case the approved increase would be applied overnight to your account so you will have access to funds within a day.
You may have to pay a small fee but in the end it is better than going over your limit since you will have to pay a significant charge for it and a higher interest rate. If the interest rate on your overdraft is significant but if you do require flexibility then you can always consider transferring your balance to a 0% card or you can switch to a new current account with a lower rate of interest.
5. Family and Friends
Though it may feel a little embarrassing, if you do have a family member or a friend who may be willing to help you out with some money then it would be worth asking. You could always offer to pay some interest on the borrowed money, though chances are that they may not accept it from you.
This can be a good way to save a considerable amount on high interest charges if you borrow from someone you know at the time of need. Ensue that you do repay the money in the agreed time.
6. Payment Holiday
Those who are struggling with expenses that have to be immediately paid may consider taking up a payment holiday from one of the monthly obligations. This may be on a credit card, mortgage or a personal loan. If the need is delicate, you can ask for a few months leeway so that you can pay the unexpected payment.
In order to be able to take the payment holiday you will have to be paying the instalments regularly for a fixed time. Contact the lender to get more information on your options.
Though it may seem to be an ideal means to get funds you need, you should not that this option is not really free. When it comes to mortgage, a payment holiday may turn out to be quite expenses since you would not be paying the debt and the interest would be piling up.
When you do pay up the debt you may learn that the monthly repayments would have increased. This means that for the rest of the term you may have to pay up more every month.
7. Personal Loan
Personal loans may be quite expensive for borrowing funds. In some cases a credit card with a lower rate of interest may seem to be cheaper. However, personal loans do have some benefits since you will have fixed payments which will make it easier for you to repay it.
If you require a large amount of money then it would be cheaper to borrow a personal loan rather than overdraft. You will have to ensure that you find the cheapest possible loan rate and a short term to minimize the interest that you will have to pay.
8. Other Credit Options
If your credit history is poor and you are finding it difficult to get personal loans then some of the new non profit government schemes would be the right answer. My Home Finance is a pilot scheme that is tested in West Midlands currently and it offers loans to people who are unable to get high street credit.
These loans are offered to people so that they would be discouraged to approach loan sharks. The charges would be around 29.9% to 49.9% on an amount of GBP 500. Even though this rate is higher than the normal loans, this can be a worthwhile option if you are in a tough position.
9. Pawnbroking and Payday Loans
For people who are in a real fix and need money as fast as possible, pawnbrokers and payday loans may be the only available option. The repayment term would be 30 days for these loans and it can be paid off on your next payday.
You should know that you must only consider these services only if there is no other way for you to arrange for money. The extremely high interest levels that these lenders charge, around 2000% APR, and the risk of losing out some of your personal assets is one of the reasons why you should consider this option as your last resort.
For extreme circumstances you can consider this credit source but it would be advisable that you pay off the borrowed amount as soon as possible. You may also want to get some advice from some of the debt charities. Citizens Advice Bureau is an option to consider.