Handling financial emergencies the savvy way

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How to handle a financial emergency like a pro

5 tried and tested options to consider...

There are nearly ten million people living in the UK with no savings at all. Having spare money to put away at the end (or beginning) of the month feels like a rare luxury. More often than not, people just about make ends meet between paychecks and regularly having money to put aside 'for a rainy day' as their parents and even their grandparents may have done, seems unthinkable.

So, if you have no money put aside, what do you do when you find yourself in a financial emergency? First of all, there's really no need to panic. You do have options. Our guide will take you through some of the solutions that can help you to handle a financial emergency without breaking a sweat!

What constitutes a 'financial emergency'?

There's no right or wrong answer to this question. It's all down to how your situation makes you feel. One person's inconvenience is another person's crisis, and in turn, a financial emergency is an extremely subjective thing. However, there are a number of situations that of our borrowers find themselves in that they certainly consider to be financial emergencies. Let's take a closer look at some of these...

You know what they say, 'you don't know what you've got until it's gone.' And that's certainly true of household appliances! There's only so long you can expect your family to live without hot water if your boiler packs up. If you're washing machine is out of order, those living in urban areas might be able to get by with the odd trip to the launderette, but a family with young children living a drive away from the nearest public laundry would really struggle. You need school uniforms to be clean and you need shirts for work. You need to get it fixed!

And then there's the car. Without a car, many of us struggle to function at all. We can't get to work, we can’t take the children to school and we can't do the grocery shopping. Maybe you need access to your car to visit elderly or sick relatives, or perhaps you live in a very rural location with nothing within walking distance. In these scenarios, getting your car fixed asap is an emergency.

Imagine you have toothache, but you know you don't have the money in your account to cover the dentist bill. Alternatively, if you are unwell, or someone in your family is unwell, and needs medication, you may find that your current account won't cover the cost of the prescription and other medication you need. Most people would view this as a financial emergency.

For some, renewing a subscription might constitute a financial emergency, while, for others, running out of cash to pay an instalment off on a pre-booked holiday would constitute an emergency. Although these things are subjective, they have one thing in common - they are costs that need to be met right away in order to avoid a negative impact. Delaying treatment or failing to meet other costs to which you have previously committed, would have a significantly negative impact on you and even on your finances, so accessing cash right away may be a solution.

School trips are brilliant, but they cost money and often you'll get a week or two's notice of a payment being due. School uniforms are a great idea, but they are expensive and your child has outgrown their school shoes or ripped their coat and you've not got the ready cash available right now to replace them.

You forgot you need to pay out for school meals and your son has just received ANOTHER party invite and that's another birthday gift you have to stump up for. When it comes to financial emergencies, children are often behind them and they are rarely very good at understanding the concept of waiting until payday.

If you have taken out a loan or loans in the past and a scheduled repayment is due but you have no cash; or if you need to repay your credit card balance before the end of your interest-free period, for example, you may feel that you are in a financial emergency.

Overdraft charges, for those who go over their agreed limits, in particular, have become extremely expensive. If you have spent more than your bank has agreed to lend you, you will often be sent a message about impending charges unless you pay cleared funds into your account that day. If you have no access to money until payday, it's easy to see why this could be viewed as a financial emergency.

So, it's an emergency. What are your options?

The solution to most financial emergencies is money. But where do you get emergency money from if you have none available. Let's look at some of the choices:

1. Ask for help

Asking for help from family and friends - or even from your employer - although seemingly difficult, could be the most painless solution to your financial emergency. You may be surprised at how willing your loved ones are to bail you out of a tight financial spot if they are given the chance, so it's always a good idea to ask.

Sometimes, you'll find that simply sharing the fact that you're experiencing a financial emergency is enough to prompt those close to you to offer a helping hand.

2. Look at your current situation

If you already have an overdraft, you could consider asking the bank if they will extend your limit. They will need to check your employment status and financial situation as if you are applying for a fresh overdraft, but if you are successful you may have access to the extra cash within a day or two. However, it's important to check how much extra you will be charged in interest on the larger credit limit and to be clear on penalty charges for going over your limit (which can be extremely high).

Another simple way to access cash is to put the cost on a credit card, if you have one, or to apply for one, if you don't. Applying for a credit card usually requires a full credit check and interest rates can be high. However, if you are lucky enough to be offered an interest-free credit card, this could be a decent debt-consolidation option, as well as a solution for unexpected costs. However, it's important to bear in mind that interest rates will return to your card issuer's standard rate following the interest-free period, which could be relatively high, so it's a good idea to clear the entire debt within the offer period.

3. Sell online

Selling your belongings online has become a popular and easy way to boost income temporarily. Whether you turn to Facebook Marketplace, Amazon, Gumtree or eBay to market your goods, selling your unwanted clothes and media, or even furniture, bikes or vehicles, is simple to do and can help you clean out your own home as well!

4. Take on extra work

This seems like an obvious solution, but many people don't consider it. However, the gig economy has opened up the idea of extra work and extra shifts to all kinds of people, who enjoy the freedom and work-life balance it can provide.

If you can't see yourself delivering takeaways or parcels, you could look into renting out your spare space through sites like Airbnb or even the government's Rent a Room Scheme.

5. Can direct payday loans help you in a financial emergency?

An extremely popular way to get hold of quick cash is taking out a payday loan, or a short-term loan, as it's often called. Payday loans usually give you access to relatively small amounts of money over a short period of time. Sometimes lenders ask you to repay the entire sum borrowed, plus interest charges, on your next payday, while we offer more flexible repayment plans, whereby the loan is repaid over a number of monthly instalments.

How quickly will I receive the money from a direct payday lender?

When you apply for a payday loan through a direct lender, as opposed to a broker, you can often receive the funds in your bank account on the same day. However, this does depend on some other factors, such as what type of bank account you have and whether you are approved for the loan.

Direct payday loan providers understand that their customers are often experiencing financial emergencies and that accessing funds very quickly is the key to finding a solution to their problems. They often don’t have time to wait for their new credit card to come through or for their increased hours to pay off. They need money right away and are happy to repay the money quickly and agree to relatively high interest rates in exchange.

A little about Faster Payments

Faster Payments is a service that many banks and building societies use to enable their customers to receive payments into their accounts as quickly as possible. If your bank account provider uses Faster Payments, you are likely to receive funds from a payday lender within the same day. If they do not, it may take longer, so check with your bank.

How much do payday loans cost?

There's no definitive answer to this as the rates you will be paying, in terms of interest, and the fees you will be charged will differ from lender to lender and in response to your personal financial circumstances. Some lenders may charge higher interest rates to borrowers with lower credit scores, for example. Others will charge for things like early repayment, while others won't.

However, there are limits on how much payday loans will cost you, which were introduced by the Financial Conduct Authority (FCA). Interest charges must not exceed 0.8 per cent of the value of the loan each day and the entire amount you pay in interest and charges will never be more than double what you borrowed.

Does taking out direct payday loans give you more control than using a broker?

We are lucky that there is more choice than ever for consumers looking for short-term loans. Although the world of online loans can seem a little daunting, it's actually easier than you think to do a little research of your own and apply for a payday loan direct with a lender.

Most payday lenders will provide useful tools like payday loan calculators, FAQs, debt and financial management guidance and eligibility criteria, to help borrowers make their decisions. Using brokers is usually unnecessary and can cost you dearly in fees.

And finally...if you decide that a payday loan may solve your financial emergency, make sure you go with a responsible lender

Taking care to check whether a lender is FCA-authorised is the first step to ensuring you are dealing with a responsible lender. Other clues will be thorough credit and affordability checks before lending, as well as a supportive approach to customer service for those who might be struggling to make their repayment commitments.

With the cost of living ever-increasing and many people still struggling to make ends meet on a regular basis, hundreds of thousands of working people will find themselves in a financial emergency this year. It's important to realise that you're not alone. You also have choices. We hope you find the right solution to return some financial calm to your life.

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