Dealing with financial emergencies is inevitable. At some point, you might find yourself faced with an unexpected event. It can be unanticipated unemployment or a drop in income.
That won’t be a huge problem if you have a stash of cash. The problem is that not everybody has a rainy-day fund they can access easily to pay for unforeseen expenses.
In an online survey, about 40% of Canadians reported that their bank accounts would not survive a financial emergency. Around 37% seldom or never put money in an emergency account.
Today is always a good time to start building a cash reserve for unplanned expenses. However, if you’re in a situation right now where you need quick cash, you need an immediate solution. You can take practical steps to cover a financial emergency, but it would help define what that is first.
What Counts As A Financial Emergency?
Not all expenses that catch you off-guard are financial emergencies. You might not have the money to pay for routine car maintenance or property taxes, but they are not unforeseeable. These are expenses you should expect when you own a car or home.
A financial emergency is an expense that you cannot anticipate but can have immediate and serious consequences. If you fail to meet these expenses, it can disrupt your financial security.
Financial emergencies can mean various things to different people. The most common ones can take one of these forms:
- Health: A sudden illness or accident can impact anyone in the family. Some people need extra funds to buy prescription medicines or medical equipment, even with health care coverage. It’s even more of a problem when you don’t have health insurance.
- Home: Natural disasters like earthquakes or floods can hit your home without warning. Home insurance is a great way to pay for the necessary repairs. However, not all policies cover these types of damages.
- Work: Losing your job or your primary source of income can be terrifying. It can be harder to cope with everyday living expenses without emergency savings.
What Can You Do To Cover A Financial Emergency?
An emergency fund must be your first line of defense against tough times. But don’t lose hope if you don’t have one right now. Other options may help you get fast cash during a financial emergency.
Tap Your Home Equity
You can borrow a sizeable amount of cash against your home equity. In Canada, you can borrow as much as 80% of your home’s appraised value.
The interest rate on a home equity loan is often low since banks use your property as collateral. In addition, you won’t have any restrictions when using the money.
Borrowing against your home equity is an excellent choice to pay for a big emergency expense. But the drawback is you can lose your home if you default. It may also take weeks before you can get the money you need.
Get A Personal Loan
Personal loans are a lump sum you can borrow for any purpose, including financial emergencies. The amount can range from $100 to 50,000, and you repay it in installments over a predetermined period.
In most cases, the term for a personal loan is between 6 and 60 months. Because of that, it’s easier to calculate and compare the total cost of the loan.
Make sure to comparison shop before getting a personal loan. Note that lenders should not charge more than 60% interest per annum.
Get A Payday Loan
There are many types of loans online in Canada available to give you access to fast cash. A payday loan is one of them. But since it’s a short-term loan, this option is best for small emergency expenses.
In Canada, you can borrow up to $1,500 for a payday loan. You must pay the entire amount plus the interest on your next paycheque.
A payday loan is a good option, provided you pay it back on time. Only deal with a licensed payday lender and read the loan agreement’s fine print before signing.
Other Steps You Can Take
Some people are not comfortable taking out loans, even during financial emergencies. In that case, you might want to consider these options:
- Eliminate unnecessary expenses
- Sell some property
- Borrow from friends or family
- Get financial help through various government programs
Borrowing money or taking out a loan can help you pay for emergency expenses. But it’s only a temporary solution.
The best way to avoid situations where you are in serious need of quick cash is to plan ahead, save money, and get insurance. Don’t wait until an emergency to take steps to protect your finances.As an Amazon Associate, Icy Canada earns from qualifying purchases.