Short term loans, a last resort for many cash strapped folks

Many people would argue against taking out short term loans for an emergency because of the interest rates on some of these types of loans. Unfortunately, the reality of life is that sometimes this maybe you’re only option. Maybe you’re living pay check to pay check, and your car breaks down and you don’t have anybody else you can count on – and you must get to work – and public transportation is not an option. Maybe you’re a single mother with no family or friends that can help you and this is your last resort. Don’t beat yourself up – it’s just not worth it. Do what you need to get back on your feet, take a high interest loan and pay it back immediately. Then, decide on how to best avoid these situations in the near future.

It’s not an ideal situation but if you have to take out a payday type loan once in your life, maybe it’s the wakeup call you need to realize the importance of smart financial planning. Regardless, you haven’t been responsible and have yet to create an emergency stash – so this is a wakeup call to you.

In general, you should have roughly 6 months living expenses saved up in your emergency stash. Some would argue this is not enough – it really depends on where you live and what you anticipate in the form of potential emergencies in the near future. In today’s economy, you never know when you might get the pink slip. Because some industries and professions are far more difficult to find employment, such as higher management types of positions, it may take a year or more for these types of professionals to find a new job – they should a year or more worth of living expenses saved up in their emergency fund.

Only after you’ve created an emergency fund should you move on to saving and investing and aggressively paying down any debt you may have accumulated over the years. Some may argue that you should pay down debt first, and it’s a valid argument depending on the interest rates of that debt, however, if you run into another emergency you may be forced to incur debt at an even higher rate, so you should cater your decision based upon that type of information – would it be more costly for you to take on additional debt in case of an emergency or create a stash and earn interest on that money.

This is a guest article by Mark.

 

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