Life has a way of presenting sudden emergencies in your path when you least expect it. Worse, sometimes such a surprise can come at a time when you can least afford it, be it a medical emergency, or a large payment that you can't afford with your current income. The truth is that, no matter how well you prepare, sometimes you can just find yourself in a situation where you are in a desperate need for cash, quickly. However, there are some things one should never do no matter how much they need money. Here, we discuss a few "popular" ways that people try to get cash that just shouldn't be employed.
Avoid Money Lenders and Payday Loans
In Singapore, there are 160 licensed money lenders that are readily visible on every corner of the street. When there are dollar signs hanging on your eyeballs, payday loans or other options from one of these vendors might seem like an attractive source of quick financial assistance. However, we advise our readers to stay away from them as much as possible. While 4% interest rates may sound low, these are actually monthly rates that represent 48% of annual interest, a monstrous cost that can ruin you financially forever. If you were to borrow S$5,000 from them now, you could end up owing S$6,000 in a matter of a few months.
Instead, you should consider other alternatives like getting a personal loan from a bank. These loans can be taken out for any purpose, and can be made available within one day. Not only that, they are much cheaper, with some of them offering around 1% monthly interest rate (or 10-12% annually). If for some reason your credit score isn't good enough to secure one, even a pawnshop loan or even selling your things can be a much more economic and safer option than going to a moneylender.
Don't Ask Your Friends or Family to Be Your Guarantor
Sometimes, certain types of lenders like the ones we mentioned above will ask you to introduce a guarantor of your loan. This means that, if you end up not being able to pay your debt in full, the lender can come after you to collect their money. This typically happens because the lender doesn't have full confidence that the actual borrower has a believable and legitimate way of repaying his loan. This also means, however, that you will be putting your friends or family at great risk by asking them to guarantee your loan. At worst case scenario, you could end up bankrupting them, ruining their lives and severing your ties with them forever.
Instead, a better option is to ask them to lend you money themselves. Sure, it can feel awkward or shameful to ask people you know intimately for money, but it's much better than risking their livelihoods. Not only that, they are more likely to lend you at low or even no interest rates with a lot more flexibility in terms of when you can pay them back. You could even be positively surprised the amount of support and generosity that you receive from your community. Hopefully, you won't need to borrow too much and their generosity motivates you to work hard to repay them in full promptly. Do unto others as you would have them do unto you.
Don't Rack Up A Credit Card Bill That You Can't Pay Off In A Month
Another tempting way of paying for things when you don't have enough cash is getting a cash advance or even just racking up a huge credit card bill to postpone your payment until a later date. This could actually be a decent solution, so long as you do it properly, since you can even earn some credit card rewards while doing so. The most important rule to abide by when doing so is to spend only as much as you can pay back in full in the next month. If you spend more, the amount you still owe to the bank will start to balloon at a rate of more than 25% per year.
If you find yourself in a situation where you actually have built too big of a balance, there is still hope. There are financial instruments like debt consolidation plans and balance transfers that can help you either reduce or postpone the repayment until a later date when your financial situation has improved.
Because life is so unpredictable, the best way to prepare is to always save and invest a meaningful portion of your earnings. These funds can act not only as your future passive income, but also as a rainy day fund to help your get out of a pickle. Hopefully, this article motivates you to start budgeting more wisely after reading this article. Even if your rainy day fund isn't enough, however, you should not panic and turn to the first thing that you see on the street. There are still better and smarter ways of financing your emergency than some of the ways we discussed above.