What do you do if you’re in debt but need to fund a big purchase? Sometimes life throws up something out of the blue that proves costly – a home repair or car breakdown, say – that cannot be avoided. Such purchases are often beyond the spending power of most people and could easily throw a carefully managed budget off plan.
Suddenly that loan or credit card that you are managing can be a headache. It can be tempting to try to take on more of the same sort of debt and worry about it later, but it’s that sort of thinking that could eventually lead you to need an IVA or other form of debt rescue plan.
So, beyond the obvious credit cards and loans, where else can you turn? Are there other ways to borrow when money is tight?
Payday loans
We’ve all seen and heard the adverts for payday loan companies. These are lenders that can give you fast access to short term cash. It’s worth noting that the interest rates for such products tend to be eye-wateringly high, mainly because the intention is that you will pay them back within a matter of days or weeks (when your payday actually arrives).
These loans are now capped – meaning that no-one can pay back more than twice the amount they borrowed – but you still need to be aware that these carry a significant amount of interest.
An advance
If you’re in work and have run out of cash, you could ask your employer if they’ll give you an advance on your wages. Depending on your relationship with your employer, this could be a really effective way of clearing off a one off debt without the need for any form of financial product.
If you’re claiming benefits you might also be able to ask your Jobcentre Plus for a short-term advance.
Up your limit
If you’re already in the midst of paying off a credit card, it might make sense to to add your new debt to the one you’re already paying off. You can contact your lender and see if they’re able to give you an increased credit limit on a temporary basis. You’ll need to be sure that you can meet the cost of paying this back, however, as the fees and charges for not keeping up with credit card payments will only add to your problems.
Borrowing from family and friends
A friend or family member might be willing to help you out of a hole and lend you the money you need to fund an out of the blue expense. However, even though this is less formal than a loan you should still set out a plan to pay this back properly – failure to do so may sour a close relationship.
Credit unions
Credit unions are lenders set up to provide finance for their community. They tend to offer modest sized loans – making them an alternative to payday loans – and are only able to charge a maximum of 3% a month. There should be no hidden charges and no penalties if you wish to pay back your money early.
Overdraft
Your current account might well have an agreed – or authorized – overdraft limit yet this limit isn’t set in stone. If you need to dip into the red in your account and don’t want to pay fines and a big interest rate then you can contact your bank and request an extension.
Special forms of credit
If you’re claiming benefits you might well be able to apply for an interest free ‘budgeting loan’ from the social fund. You can find out more about this at your Jobcentre Plus.
Anyone who is in trouble and finding they cannot afford food or other essentials such as the heating bill might be able to get help from a ‘local welfare assistance scheme’. These schemes, found up and down the country, are able to issue vouchers, donate furniture or ensure you get help from a food bank.
