Sometimes we are faced with an unexpected expense.There are smart ways to borrow money which will help tide you over during times like this. There are also expensive ways to get emergency cash which could store up debt problems for you in the future. If you need a quick fix, here’s our guide on what to do
The best option is to have a bit of spare credit available in case you need to call on it—an unused overdraft or a credit card that you have set aside for emergencies.
That’s because unplanned borrowing can be expensive. Getting things wrong could land you in a lot of financial bother for a long time.
If you feel money is tight and you need to free up some cash, then one quick way is to sell your unwanted stuff in local ads, on ebay or at a car boot sale.
Supermarkets often allow you to put up one of their free ad cards for a week, which will be seen by a lot of local people. This approach is ideal if you have something large and difficult to post, such as a bike or furniture.
Cut the luxuries
You could also think about cancelling subscriptions, gym memberships, regular orders of wine or groceries that you don’t really need.
Chopping a few of these out of your monthly spend can make a big difference.
Draw up a budget
Sometimes money leaks out in unexpected ways. Your daily coffee could be costing you £15 a week—substituting that for a drink at work will give you £60 a month more.
If you list everything you spend, including things you pay for by cash for a couple of weeks, then you will be able to see your spending pattern.
Keep the details in a note book and see where your money goes. This is a good way to identify non-essential spending, and help you create some surplus your budget.
Talk to your bank
Getting an overdraft extension is one of the simplest ways to get a bit of extra spending power. If you have an existing agreement already with your bank, then you can ask for an extension.
You may be charged an interest fee, but this is likely to be much lower than the APR interest rate on a credit card.
When you contact your bank, think about how you are going to pay off the overdraft. Borrowing money without having a plan to clear your debt does not make financial sense.
Medium term solutions
Use your plastic
Applying for a new card with a low interest rate, or a balance transfer card, could be one way to boost your borrowing power.
Although credit cards can be useful as a way of managing cash flow in the short term, they can end up being a financial burden if you don’t have a plan to pay them off.
That’s because if you only make the minimum payment every month then you’ll only be paying off interest, rather than tackling the underlying debt.
Find your side hustle
The American concept of having a “side hustle”—a part-time job or enterprise which helps to supplement your regular income—is starting to catch on here in the UK.
Babysitting, dog walking, gardening and DIY services, home crafts, baking, and temping can all be fitted in around your normal job and could give your income a bit of a boost.
Or you could exchange services with friends—it won’t generate extra cash but could save you money.
There are so many ways you can make money in today's age. The Modest Wallet shows you a few legitimate side hustles.
Take out a loan
An unsecured loan is for a year or more, fixed at a specific interest rate. A secured loan is held against the value of your house, and a remortgage frees up cash by adding to your mortgage debt.
Of these, remortgaging is likely to be the cheapest in terms of interest, but the most serious in terms of commitment, as if you fail to pay, you risk losing your house.
If you are thinking about taking out any form of loan, check the terms and conditions very carefully. You may have to pay an additional arrangement fee, and be hit by early redemption penalties if you try to clear your debt before the end of the term.
Longer term solutions
Improve your credit score
Making sure that you have a good credit rating is the key to lower cost loans, cheaper credit card interest rates, better broadband deals and lower costs on utilities.
That’s because many of the best deals are reserved for customers with a perfect credit rating.
You can improve your rating by making sure you are on the electoral register, trying not to miss any loan, mortgage or utility payments, cancelling any old credit cards that you no longer use, and not making too many applications for credit in a short time period.
You can also check that the information on your credit file is correct by asking one of the credit reference agencies like Experian.co.uk or Equifax.co.uk for a copy of your £2 statutory credit reference file.
Build up an emergency fund
The best solution of all to a short-term financial crisis is having some savings to fall back on. You can start to build up a nest egg by opening a simple deposit account or regular savings accounts.
Interest rates are relatively low, so shop around by looking at the best deals on offer from Moneyfactsw.co.uk or Moneysupermarket.com.
Things to avoid
Payday loans charge high rates of interest and can roll over, meaning that you owe far more than the original sum you borrowed.
Pawning goods for cash will give you a low value and is not a long-term solution if you are trying to get out of debt.
Credit cards with high APR rates will mean that interest charges could quickly mount up.
If you need more help
Debt counsellors are used to helping people with money issues and they won’t judge you. Often people get into debt because of life events such as sudden illness, divorce, redundancy, loss of overtime, childbirth or disability.
If you are starting to find it difficult to manage your borrowing commitments then it is time to seek help.
Never pay for debt advice—it is freely available from the following debt charities:
National Debtline: www.nationaldebtline.org
Citizens Advice Bureau: https://www.citizensadvice.org.uk/