Get used to them: A primer on managing unexpected expenses

Few things can put a damper on your financial outlook quite like unexpected expenses. In no uncertain terms, they’re the worst. These payments can be anything from spending a few hundred dollars on a new computer, to thousands of dollars on sudden medical costs.

In an ideal world, you’ll have planned for dealing with some unexpected expenses. You could have done this by establishing an emergency fund, proactively changing your budget, or increasing your investments.

But life isn’t always ideal, and there’s a good  chance you’ll have to take on some debt to keep your head above water while you deal with your flooded basement being under water. Here are some tips for getting through these potentially tough circumstances.


1) Avoid Payday Loans

Payday loans are small, short-term loans that are typically due on your next payday, according to the Consumer Financial Protection Bureau. You may have seen commercials for them on TV. These might seem like great options if you need a quick fix to tie you over for a week or two, but they actually can be quite destructive.

Consider that the payday loan industry has grown to almost $50 billion — annually. That’s not by accident. Payday loans often come with ridiculously high charges and fees, and very few people actually end up paying them off on time. This will lead to even more fees. All of a sudden that $450 loan has ballooned to $1,500, thus further entrapping you in a cycle of debt.

If you do plan on getting a payday loan, you should be absolutely sure of your ability to pay it off on time.


2) Consider peer-to-peer lending

The P2P lending space has exploded in recent years, providing another viable option besides banks for many people looking to take on loans.

Peer-to-peer lending just means you have the ability to receive a loan directly from the lender without having to go the traditional route. Rather than dealing with the rigid system of going to a bank and waiting for approval on a loan, P2P lending can give you access to funds much faster with a few clicks of your mouse.

These can be incredibly useful if you’re in a bind and, unlike payday loans, they have manageable fees that they take from both the lender (who hopes to make money in the interest you pay) and the borrower.

Some of the top P2P lenders include Prosper, Lending Club, and SoFi. But beware of the interest and fees that they charge. Look for lower fees and interest rates.


3) 0% Financing… Is it really 0%?

With Zebit, 0% financing is really 0% APR. That means your total purchase price is spread out over time without any added interest, fees, or penalties. No other company is willing to do this because they make they money knowing you won’t pay it off right away and charge you interest.

Unfortunately, many furniture stores, for example, say they offer 0% financing, but end up charging you back interest if you miss a payment, which could double the price of the furniture. Although it sounds like a good offer, watch out for the “gotchas” in 0% credit card offers or in-store financing advertisements.


4) Do your research

The key thing when confronted with unexpected expenses is to be smart about paying your way through it. Going into credit card debt may seem like the easiest solution, but it may not be the most effective. There are sound, affordable short term loans available for you, as long as you know where to look.

Read the terms of whatever loan you take. See what the interest rate is, what fees are involved, and how the repayment system works. As long as you do this, and do your research on multiple loan options, you put yourself in a good opportunity to get passed whatever unexpected financial situation comes your way.

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