Top tips for handling unforeseen costs and financial emergencies
Oh no, the worst has happened – the car has gone up in smoke, the dog needs a trip to the vets or you’ve had a huge energy bill through that you weren’t expecting…what happens now? Well depending on your money management skills, there are a few things you can do to make sure that any financial emergencies are covered with as little impact on your life as possible.
We have this situation at the moment and many things seem to break or cost money at the same time. Our car is in need of new brakes and new tyres and a service. Our washing machine needs to be replaced. Potentially there is an extra £1000 to £1500 that we need to find in February. Not good just after we have paid off the Christmas bills. We are also considering buying a new car, getting something newer and more reliable but we dont quite have the funds in place to buy a new car. A finance deal or loan will be considered.
Read on to discover the top dos and don’ts of handling unforeseen costs here, from the financial experts over at Choose Wisely.
Don’t panic!
When that bill drops with a thud on your doorstep, or the mechanic says he has bad news, it’s easy to feel the worries rising. Your mind is racing through your different options and you want to get it paid as quickly as possible – but stop, take a breath and think carefully before you take action. It’s easy to feel overwhelmed, especially when it comes to money troubles, but thinking before you act could save you money and protect your credit in the long-run.
Take a look at your existing finances
If you have savings or have put money aside for a rainy day, could this cover a sudden shortfall? We have been working hard over the past few months to put some money aside for emergencies and have created an emergency pot. This is the first place we turn to for the new washing machine or the car repairs. I would advise everyone to put aside money every month and to create that emergency pot. An aim is to get to three months worth of salary. It’s much wiser to use money you already have, rather than immediately applying for credit. It will prevent you from having to worry about adding another monthly outgoing to your budget and you can replenish it over time.
Don’t be afraid to ask for help
Speaking to your friends and family about any financial emergencies will make you feel better and, together, you might be able to find a solution. Perhaps they could even lend you the money, but if their funds are also tight, then speaking to those you owe the money to can help. We have found sharing our money woes has really helped with the mental side of money worries. We have no one to help us and give us money but sharing the load and the worries with friends just helps rather than bottling it all in.
Some utility providers may be able to work out a payment plan for you (with no interest), or you could negotiate chipping away at the payment by raising your monthly payment slightly. You could even ask them to wait until your next pay day.
Try to raise the funds
If you’ve been granted a longer period to pay back the money, then see if there are other ways to gather the money. Could you take on more shifts at work or carry out a bit of overtime? You might even find some items during a clear out that are worth selling online. Here are several ideas of ways I have made extra money in the past . From eBay to mystery shopping there are so many ways to create some extra cash with a bit of work.
Don’t ignore your credit file
If you think you might need to take out a loan then you’ll need to take a good look into your credit file. Make sure the information is correct (if not then you’ll need to contest it) and make a note of your credit rating and health as you’ll need these for any lender research you carry out. Experian offer a free service where you can check your credit rating and keep track of it regularly. You can order a full credit report for £2 to check the detail within.
Take the time to research
If you have exhausted all the above consideration and still need to find some money then you might need to borrow that money from a lender. It happens, we are considering this very same option in order to buy a car right now. You will need to find a lender that’s suitable for your financial circumstances is the best way to take out credit. If you’ve had problems in the past, then look at bad credit lenders who will have loans/credit cards that cater to your financial position.
Don’t apply to lots of lenders
Making a load of applications to different lenders will make you seem desperate for the loan and therefore a higher risk, which in turn means you’re more likely to be declined. This is a vicious cycle and can have quite an impact on your credit rating. Take the time to pick one lender that you’re sure you want to apply for.
Check your eligibility
Many lenders will now have sections on their websites that allow you to check to see how likely it is that you’ll be accepted. Although this isn’t a definitive answer, it looks at the information you put in and does a soft credit check that doesn’t leave a mark on your file, in order for you to get an indication. A great idea to do with reference to the prior point, applying for credit several times will increase the chance of being rejected for the credit.
Make sure that you can afford the loan
Remember to look at the interest rates before you accept the loan. When you’re making the application, you may be given a representative APR, but this won’t necessarily be the final figure. Once you’ve been given the loan terms, take a moment to work out exactly how much extra you’ll need to pay back each month, and whether this is realistic for your circumstances.
The main thing to do when an unexpected payment hits is to take a step back and not rush into anything. By thinking about your options carefully, you can avoid falling into common pitfalls and you’ll hopefully be able to save yourself money and hassle in the future.
