Originally Posted On: https://www.iquanti.com/

Sometimes poor decision-making or unexpected emergencies can cause financial distress. When it comes to borrowing money when you’re in a bind, there’s a right way and a wrong way to go about it. Emergency loans are a good example. They can be helpful when you’re trying to reduce any financial stress while resolving those financial obligations.

There are many ways to avoid debt when taking out a loan. It all boils down to having a realistic understanding of your personal finances. Continue reading to learn more.

Create a budget that you can stick to

Many people have a budget but rarely stick to it. Planning without execution can be a recipe for disaster. So, if you create a budget, commit yourself to following it. The best way to do that is to evaluate your monthly income and expenses and set realistic goals that align with your resources.

One example of this is budgeting for take-out food. It’s easy to say you’re cutting eating out from your budget altogether, but can you stick to that? Limiting what you can spend on take-out food would be easier than eliminating it entirely. Review all your expenses and find areas where you can spend less. That will free up money to save for emergencies.

You’ll also want to look at “wants” and “needs” when reviewing your budget. Premium movie channels aren’t a need when there are streaming services offering them at a fraction of the price the cable company is charging. They’re not a need at all if you think about it. The same could be said about those expensive brand-name foods you buy at the supermarket or another pair of shoes to add to your collection.

Pay down high-interest credit card debt

Taking out an emergency loan isn’t a big deal unless you have a bunch of other debt you’re already paying off. The worst of that is typically credit card debt.

Interest rates on most credit cards are much higher than what you’ll pay on a personal loan. Work on paying them off before you experience a financial crisis. That will make the new debt more manageable.

Another benefit to eliminating credit card debt before applying for a loan is that your credit score will likely go up. This can lead to lower interest rates, fewer fees, and more reasonable terms on your loan. It will also open the door to more lenders.

Start an emergency fund

Having money in a savings account for emergencies doesn’t mean you need to pay cash when something unexpected happens. Those funds are a reserve, a guarantee that you can pay off your loan even if your financial circumstances change. Start saving today by putting a few dollars in the bank here and there, then do it consistently every time you get paid to watch your saving grow.

The Bottom Line

While it may seem difficult to avoid debt when taking out a loan, there are steps you can take to make the process easier on yourself. By creating and sticking to a budget, paying down high-interest credit card debt, and starting an emergency fund, you can put yourself in a much better position financially.

SPONSORED CONTENT