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What Borrowing Solutions Can You Use In An Emergency?

Sometimes you don’t have enough savings to cover an emergency expense out of pocket. And sometimes you’ll have to consider borrowing funds to cover that expense in a short amount of time. What types of borrowing solutions can you use in this stressful situation?

Credit Cards

Credit cards are extremely useful safety nets in emergencies. If you don’t have enough savings in an emergency fund — or worse, you don’t happen to have an emergency fund whatsoever — you can turn to your credit card as a backup plan.

Charge the expense to your card as soon as possible. Once you’ve resolved the emergency, you can focus on paying down the balance before the next billing cycle. If you can’t manage that, you can continue to slowly pay down the balance over the upcoming months as it accumulates interest.

You should only use your credit card to cover an emergency expense when you have plenty of credit available in the account. If you don’t have a lot of credit and your balance is pushing close to the limit, do not add another charge to the account. This could saddle you with too high of a balance to pay down and could lead to maxing out your card.

Depending on the emergency expense, you may be able to divide it up amongst multiple credit cards in order to keep your balances low and far away from the limits.

Cash Advances

You can choose to charge an emergency expense to your credit card as usual. Or you can try to take out a cash advance from your credit card. A cash advance is a type of short-term loan where a user borrows money against the credit available on their card. Essentially, they can borrow cash from their credit card instead of charging a transaction to it.

There are several caveats that come with cash advances. First, your credit card provider will charge you a cash advance fee when you request this service. Second, interest charges will be different from your regular credit card transactions. With your regular credit card transactions, your card will have a grace period where interest won’t be charged. This grace period doesn’t exist with cash advances. Interest will accumulate immediately after the funds are taken out.

Personal Line of Credit

If you have a personal line of credit available, you can make a withdrawal from your account to cover the emergency expense. You should only do this if the withdrawal doesn’t force you to carry too high of a balance and put you at risk of defaulting on future payments.

If you are a homeowner, you might have a home equity line of credit (HELOC) sitting in the bank. You can rely on this specialized line of credit when you’re facing an emergency — again, as long as you are confident that you can make repayments. Defaulting on a HELOC comes with more financial risk than a standard line of credit. After all, the account is tied to your property, which means you could lose the asset after going into default.

Online Loan

Another solution that could be available to you is an online loan. With an approved loan, you can use the borrowed funds to cover your emergency expense quickly. Then, you can make repayments through a straightforward billing cycle.

Make sure to read these tips to pay off your loan properly so that you don’t run into any obstacles along the way. If you follow them, the process is bound to be smooth. Don’t panic when you don’t have enough savings to cover an emergency. As you can see, there are still several solutions that you can turn to!

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