Don’t use credit cards like this!

Requirement of funds for an emergency can crop up anytime, unannounced. Be it an accident, hospitalization, or some liability that springs up all of a sudden – all have financial implications. Many of us have to raise money in a hurry to tide over the situation. And though you may have an emergency fund in place, sometimes it is inadequate. Here are a few mistakes you must avoid while raising money in a hurry

Not weighing all options

Often those in need of funds in an emergency end up exercising the first option that comes to mind. Some approach the nearby bank for a personal loan, while others sell some investment. Do not act in a hurry. You have to explore each option and its advantages and disadvantages. For example, you may have to compare going for a personal loan, selling gold, liquidating some investments such as stocks or mutual funds or borrowing from friends and family. Consider the pros and cons of each option. Also, if you are going for a personal loan then do compare the offers across lenders.

Not considering total cost

Do not go for a financing option just because the interest rate is low. Assess the total cost. So, while taking personal loans from a bank or a fintech company do check the processing fees and prepayment costs. These may further inflate the total cost of the loan.

Not checking cash flows

You should not solely focus on the cash requirement at that moment. Do analyse your cash flows in the near term. You may take a personal loan in a hurry and later figure out that a particular insurance policy is maturing some months down the line. In this case, a loan against an insurance policy may work better. Also, instead of breaking a fixed deposit (FD), you can borrow against a high interest-paying long-term fixed deposit. This works better if the cash flow mismatch is for the short term.

Resorting to distress selling

Never sell your investments or assets in a hurry. You can instead raise loans against the same. If you have some investments in say equity mutual funds and the markets are quoting low, then there is no point selling those investments. You can offer them as collateral and raise loans against them. In case you opt to sell your physical assets and the buyer senses that you are pressed for time or are in distress, you won’t get the right price for the same. In such circumstances, it is better to raise money through borrowing.

Not approaching family and friends

This may sound outdated. But the reality is there is surplus money available with family and friends. Instead of paying interest to the bank or some lending institution, it makes sense to pay your close friends. These loans can come on soft terms. This becomes your version of ‘peer-to-peer lending’ on soft terms.

Whichever way you raise money, ensure that you take corrective steps. You should pay off your loans on time to friends and family or banks. If you have sold some investments to raise money do ensure that you save regularly and invest again to rebuild those assets. Also, spruce up your emergency fund accordingly.