This unprecedented year has seen a pandemic sweep across the globe, and millions of people have lost their jobs. Businesses forced to close during lockdowns are struggling to recover, with some owners unable to re-open their doors. Others have had to make personnel cutbacks to remain afloat.
Recent surges in COVID-19 cases could see more job losses looming. If you have lost your job, chances are you are facing financial challenges. What will you do if an unexpected crisis rears its ugly head?
Take out a loan
Think about applying for a short-term loan if your financial pickle can be resolved within weeks. You might be waiting for your first unemployment benefits and need money in the meantime to buy food and cover some debts. A short-term loan could be the ideal solution to this problem. These loans last no longer than a few months, depending on how much you borrow.
Short-term lenders operate around the UK, and it is easier to apply than ever now that people are encouraged to do it online. With a few clicks, you can secure a short-term loan and have the funds in your bank account within hours. However, as much as the convenience of applying for a short-term loan is an advantage, it has some pitfalls. People tend to take out such loans, relying on them to pay off other debts.
This traps them in a credit cycle that is hard to break free from. Borrow responsibly and avoid overextending yourself. Interest rates on short-term loans are high compared with longer-term loans. A single missed payment can increase the outstanding balance substantially.
Use your credit cards
It is wise to have a credit card and keep the available limit free for financial emergencies. When making purchases on a credit card, it is advisable to pay the whole amount instead of instalments as interest rates on these accounts are relatively high. If you have used your credit card this way, you should have some funds available to access to tide you over or pay an unexpected expense. You then have 6-12 months to settle this debt in monthly repayments.
Remember that credit cards play a crucial role in your credit score, and you must keep up with repayments. If you do not, your credit rating dips. It is challenging and time-consuming to rehabilitate a less than stellar credit score. This will affect your chances of securing loans and other credit instruments in the future.
Borrow from friends or family
This is a tricky one as bringing money into your relationships can lead to arguments, acrimony, and estrangement. It is often something people do as a last resort when they have run out of other options. Therefore, do not approach your loved ones for a loan without giving it some forethought.
On its face, people will want to help you, but what happens if you cannot afford to repay them? Additionally, do you feel comfortable taking money from someone who may need it for an emergency of their own? Put yourself in a loved one’s shoes and ponder how you would feel if the roles were reversed.
The best approach to such transactions is to formalise them in a written agreement that stipulates the amount borrowed, repayment period, and consequences of non-payment. While it might make things seem complicated, a contract will protect both parties should a dispute arise.
It is better than handshakes and verbal agreements that you will struggle to prove if a matter comes before a court. If you are repaying this loan in instalments, ensure that your friend or family member acknowledges receipt of each payment.
Offload unnecessary assets
It might be time to dispense with things that you are not using. For example, you could advertise and sell a second vehicle that you no longer use. Look at your belongings to find items that could raise some cash immediately.
Advertise them online and see if anyone is interested. Start with a higher asking price and mention that you are willing to negotiate with buyers. You can bargain down but never up. The advantage of this approach is that you will not go into debt to sort out your finances.
If you have a possession that you cannot bear to part with, there is still a way to use it for financial relief. Consider going to a pawnbroker who will offer some cash for the item and store it for a set time during which you can repurchase it.
Once you have your monetary matters resolved, you can return to the pawnbroker and regain ownership of your belongings. Keep the pawnbroker receipt in a safe place as it is impossible to retrieve your possessions without it. Ensure that you understand the agreement, how long you have to resecure your belongings, and what happens after that period expires.