Unexpected expenses are something we cannot prevent. However, many people are never prepared for emergency financial situations. For example, a study conducted by the Federal Reserve found out that 40% of American adults were unable to pay for unexpected expenses worth $400.
Meeting unexpected expenses is even harder when you are in debt. But how can you tackle unexpected expenses while getting deeper into debt?
- Cut down your expenses
The major reason why most people find themselves in unending debts is living above their means. Set aside time to review all your expenses. This might not be a walk in the park but will definitely help you to identify the loopholes in your budgeting.
After you have reviewed your budget, pick out expanses that can be categorized as unnecessary. In other words, check those expenses that you can do without. Doing so will help you save a lot and cater for unexpected expenses while avoiding getting deeper into debts.
- Small short-term loans
Sometimes you might be caught up in a situation that needs urgent money to fix the problem. For example, your car might break down at a time when you desperately need it. In such a situation, the best option is to apply for a small short-term as long as you are able to repay on time.
Small loans can be used to cover emergency expenses. However, you need to research and find a reliable lender that offers small loans with reasonable interest rates.
- Find an extra source of income
If your budget is above your current income, the best option is to seek ways of earning extra income. For instance, if you have a day job, create time to do other activities outside work that can boost your income. You can either look for another job or start a business.
Earning extra income will not only help supplement your budget but also prevent you from borrowing and getting into the debt cycle.
- Open an emergency account
The best way to tackle unexpected expenses is to have an emergency fund. This is something that not many people pay attention to. Most people wait until an emergency strikes before they start running up and down to seek funds.
The best thing to do is to have a separate bank account. This account should specifically for emergencies. The problem is that people are often tempted to start withdrawing from an emergency fund without an actual emergency.
- Borrow from a family or a friend
This is another useful option of tackling unexpected expenses without getting deeper into debt. Instead of borrowing from lenders who charge high-interest rates, it would be better to get a loan from a friend or a family member – who of course won’t charge any interest.
Another advantage of borrowing from a friend or family member is that you can agree on a comfortable repayment period. You will also get the money much faster compared to going through a loan application process.
In general, anyone can get financial emergencies. The best way to deal with unexpected expenses is to prepare. For instance, you should have an emergency fund to cater for such cases.