How to stay away from those emergency personal loans

emergency1What happens if you lose your job tomorrow?  How much money do you have saved?  The last thing you want to have to do is go to one of those places that will give you an emergency personal loan.  You know them.  Payday loans?  Here is how to avoid that.


If you listen to the Clark Howard Show, you are familiar with the Financial Fire Drill.  This concept brings up something of utmost importance.  If the unthinkable happens, what will you do?  What if you lose your job?  What if your company goes out of business?  What if you are diagnosed with an unthinkable condition?  We could make a long list of numerous doomsday scenarios but the important part is the question, what will you do?


Just like a firedrill, what if you were to wait until the actual fire before practicing how your family would exit the house?  If you were to lose your job, what is your contingency plan?  If you don’t have one, lets start setting one up.


First, figure out where your money goes.  For at least one month, write down every expense and payment.  Find the wants versus the needs and figure out what you can live without and what you can’t.  Remember that the goal is to steer clear of emergency personal loans should the unthinkable happen.


Next, look at your lists and total up how much money you will need to live each month.  Make sure that if you are a member of a family, you make this an activity with your spouse.  There may be expenses that you are unaware of and the amount of money needed each month might be a serious topic of discussion.


Next, multiply that number by at least 6 months to come up with the amount of money you need in an emergency fund.  Of all of the pieces of the firedrill, this is the most important.  No emergency fund is the same as having all of your doors and windows chained and locked during a fire.


I also recommend prepaying reoccurring items.  These items might include insurance, car and home payments, and fixed utility bills.  For some, they have a hard time saving money.  If that is you, prepay your bills so that in the event of an emergency your biggest expenses are paid and you won’t need nearly as much money in your emergency fund and that will keep you from looking at emergency personal loans.


There is a personal element to the financial fire drill. What if you are the primary income for your house?  You must have a life insurance policy, disability insurance, living will, and a burial contract.  Part of the financial firedrill is to make sure you don’t leave your family with unneeded expenses.  What would be worse that you not being ready is your family having to get an emergency personal loan should something happen to you.


Finally, somebody needs to know everything there is to know about your financial affairs or the affairs of your family.  As much as you would like to take care of everything, if anything happens, others need account numbers, pin numbers, website addresses, and information for paying bills.


Once you take care of all of these items, you will be well equipped to weather any financial storm and even better equipped to get on your feet faster without the high interest rates of emergency personal loans


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