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Smart Decisions To Address A Financial Emergency

Posted by : Premraj | Posted on : Tuesday, February 27, 2018

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Everyone must deal with a financial emergency at some point, and you’ll need cash immediately to address the problem. Even people who plan their finances carefully may need to borrow money or sell assets to resolve a financial emergency. Use these tips to consider your options and put a financial emergency behind you.

Selling assets

One way to get cash quickly is to sell assets that you own, but some assets take longer to sell than others. One alternative is to use your assets as collateral for a loan. Consumers who pawn jewelry in San Diego, for example, can reclaim the jewelry that they use as collateral when they pay off the loan. If you face an emergency and need to sell assets, consider these factors:

Certificate of deposit (CD): You may be able to cash in a CD quickly through your bank, but you may pay a withdrawal penalty. Once you cash in the CD, you no longer earn the CD rate of interest on the funds.

Stocks, bonds, and mutual funds: Improvements in technology make it easier to sell investments and receive the sale proceeds in just a few days. You will likely pay commissions to sell individual stocks and bonds, and you may incur fees to sell your mutual fund. A mutual fund is intended to be a long-term investment, and you may pay a large fee up front to buy a mutual fund. If you sell a mutual fund, you won’t earn back the fees you paid to buy the investment.

Other assets: Assets such as vehicles and real estate are much more difficult to sell because you need to verify that you have title to the asset, and the asset may need to be appraised before a sale. As a result, these assets cannot be sold to generate funds in an emergency.

Think carefully before selling any asset, because you may benefit from keeping the asset and borrowing funds instead.

Common financial emergencies

You may plan carefully and use a monthly budget to forecast your spending, but you may still encounter a financial emergency.  Here are some common financial emergencies that many people face:

Job loss: A job loss may require you to spend all of the savings you’ve accumulated before you find a new position. Even if your employer offers severance pay, it may not be enough to cover your expenses during the entire time you’re out of work. Your state’s unemployment compensation will cover a few of your living costs, but you’ll still need funds to pay your bills.

Health expenses: An emergency room visit or a necessary surgery can be expensive, even for people who have health insurance. The cost of your treatment may require you to pay a large deductible and co-payments. If you don’t have insurance, the costs will be much higher.

Car repair: Having reliable transportation is critical so that you can get to work. One of the most frequent financial emergencies is a car repair, because the cost is unexpected, and the dollar amount cannot be predicted.

Home repairs: Some home repairs can be put off, but others must be addressed immediately. Heating and cooling issues, along with roof repairs, may need to be fixed immediately to prevent more serious damage to your home.

Unexpected travel: You may need to travel to care for a loved one or to attend a funeral. If you need to care for a relative who is ill, you may have to make multiple trips out of town.

Most people face at least one or more of these emergencies over time, and you need access to cash to pay for these unplanned expenses.

Ask for help

Working through a financial emergency can be stressful, and you may not know how to resolve the situation on your own. Ask a friend, family member, or a third-party financial expert for help. It may require the help of several people to make an informed decision about your finances.

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