If you ask the elderly their view on life, the answer will generally be – ‘It is no joyride.' And as you sit in your beautiful car, with the sunshine streaming in, listening to great music and talking to your wife or girlfriend, you wonder why the oldies have such a pessimist view? Life, especially right now, is great!
But there is a reason for those creased faces and premature grey hair. They've probably been thrown many unpleasant surprises without being prepared for them. So if you want to continue to have an optimistic view on life, make sure you know how to deal with emergencies, especially financial emergencies. Raising cash in a crunch situation can be stressful especially when you don't want to endanger your long-term security.
We give you a few pointers:
i. Credit cards
These are evil incarnate if you can't pay up by due date. Quite a few payments today can be made through credit cards, which is a convenient option. However, if you don't clear the outstanding amount before the due date, this method will prove very expensive.
Also, cash withdrawals on credit cards attract very high interest rates right from the day you withdraw. The charges in either case could work out to as anywhere between 36 to 50 per cent per annum.
Use it only if you are sure to clear off the dues before due date. Don't withdraw cash and don't carry forward any outstanding balance.
ii. Loan against securities
Banks will conveniently lend you money against your shares, mutual funds, insurance policies, gold, etc. So, if you have any such investments, use them to borrow cash. Because these loans are backed by a security, the interest rates on these are quite reasonable, that is between 12 to15 per cent pa.
iii. Selling assets
You could also possibly sell some of your assets if you feel the interest cost is high on other options. For example, you can sell some shares, which you feel are a long-term story and hence are not likely to appreciate significantly in the short run. You could, therefore, always buy them back later within a reasonable price range.
But be careful. In the mad rush to raise money, don’t make a distress sale in a hurry. A good asset once sold may be very difficult to buyback.
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iv. Personal loans
If you don't have any securities to offer to banks for mortgage or sell any assets outright, then you can opt for the more expensive – personal loans. These could cost you between 17 to 20 per cent pa. Being quite expensive vis-à-vis other options (apart from the credit card), personal loans should be availed only as a last resort.
v. Advance against salary
If the problem is a temporary one, you could also consider taking an advance against your salary from your employer. But make sure that the lower salary amount that you will receive later, should not affect your other payments in the future. It goes without saying that your company should have a policy to give in advance against the salary.
vi. Borrow from friends or relatives
This may be a good option; in this case you could get money at a very reasonable rate of interest (maybe even interest-free) without any cumbersome procedure or paperwork. Further, you could also possibly get a lot more flexibility in repaying the amount. However, depending on the kind of relationship that you share with your friends and relatives, this could either be a very easy option or a difficult one.
If you keep your options open during an emergency then chances are that you don’t be cornered into a situation you repent for the rest of your life. So just as long as the speed-breakers are anticipated, life can indeed by an endless joyride.
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