When Is an Emergency Loan a Good Option?

Trent Hamm, Jun 9, 2020 Founder of The Simple Dollar

Sometimes emergencies happen in life, and the best advice I have for everyone is to plan as though an emergency will happen sooner rather than later. Start building an emergency fund now, so that you have cash when things go awry and you really need it.

That’s great advice, of course, but it’s not helpful for someone facing an emergency right this moment before they even have the opportunity to start building their own emergency fund. The reality is that we live in a time with high unemployment, and even before that, four out of five Americans lived paycheck to paycheck.

The best long term solution is to prepare for emergencies, but what are the options in the short term?

What about credit cards?

In many situations like these, people turn to credit cards. This solution offers the big advantage of being incredibly convenient: you just swipe your card or type in your number and the emergency is fixed, for now.

That big advantage comes paired with some disadvantages, however.

First of all, credit cards don’t work in all emergencies. They don’t help in identity theft situations, in situations where you can’t solve the problem with a credit card or when the credit network is unavailable (like after a natural disaster). They also don’t help if your card is already maxed out, or if you have poor credit and don’t have one.

Second, credit cards often come with very high interest rates. There are ways to mitigate this with zero interest balance transfer offers, but it’s still a difficulty to deal with, and if you don’t have strong credit, that option may not be available and you’re just stuck paying a very high interest rate.

In the end, credit cards are great for smaller emergencies where you can pay it off within a month or two and not accrue much interest on the card. They’re not good for large emergencies, and there are many situations where credit cards may be an unavailable option.

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https://www.thesimpledollar.com/loans/blog/when-is-an-emergency-loan-a-good-option/