They say most of us are one paycheck away from homelessness. Although it sounds a bit harsh, the truth is most Americans live from week to week by cashing or depositing paychecks. What happens when the paychecks stop coming, or in other words, how do you get by when you find yourself unemployed?
We rarely see the pink slip coming, whether it comes in the form of termination or the company unexpectedly shuts down. It doesn’t matter why it happens; what matters is how we scrape enough cash together to help us get through the volatile financial times ahead.
If you haven’t prepared for the loss of income caused by unemployment or you cannot rely on friends and family members to pull you through the inevitable financial crisis, you have several options to consider for emergency cash. The option you choose depends on the length of your unemployment, as well as how long you have before the serious bills (mortgage, medical, education) start flooding the family mailbox.
Unemployment insurance offers you an effective way to ride out the financial storm after you lose a job. Unfortunately, the relief takes weeks to arrive in the form of unemployment checks. What do you do in the interim? Although unemployment insurance represents a long-term solution, you must devise a strategy to gain access to cash for meeting short-term bills.
Each state develops distinct policies and procedures for confirming unemployment eligibility, as well as the processing of claims submitted online or via snail mail. According to the United States Department of Labor, the average time it takes to process unemployment claims is around three weeks. That is nearly a month that you go without any source of income. Your wait for unemployment compensation can be even longer than three weeks because some states mandate a one-week waiting period. You can also be forced to wait if you made one or more mistakes filling out the unemployment application.
Emergency cash for the unemployed can come from a wide variety of sources, many of which that do not require the approval of a loan officer or lending institution manager. How you get by during an unemployment stint is limited only by your imagination.
You have seen the commercials: “Only two more days left for our liquidation sale.” What does liquidation mean for someone who needs emergency cash because of unemployment? Unlike a business, liquidation for someone temporarily out of the work game means raising cash as quickly as possible to pay for daily expenses, such as gas and food. Businesses liquidate assets to raise money for other reasons that include paying off creditors. What is one of the most effective strategies for someone who is unemployed to increase cash flow?
Hold a yard sale.
Also referred to as a garage sale, a yard sale held over the course of a weekend can help generate money. There are probably many things you either do not use much or do not use at all anymore. By selling some of your possessions, you generate a healthy cash flow that ensures you can ride out a short-term financial storm. Make sure to advertise the yard sale at least two weeks before the event. Not only do you enjoy the financial fruits of selling things you no longer need, but you also reduce the clutter inside your home.
Many Americans work two jobs: a primary one that is considered full time and a part-time gig a couple of times a week. According to USA Today, the number of Americans working at least two jobs hit an eight-year high in 2016. Think of teachers that toil in classrooms and to supplement income take on service industry jobs at night and over weekends to earn more money. Emergency cash for unemployed professionals can mean increasing the hours from a part-time job. If you find yourself unemployed from your full-time job and do not have a second job, consider what we did as kids. You can raise emergency cash by babysitting, cutting grass, shoveling snow, or walking dogs that live in the neighborhood.
Holding a yard sale or increasing the hours from a second job represents two emergency cash options that do not further strain personal finances. However, you might need cash immediately to pay for things like utility bills and the monthly car payment. If you own one or more credit cards that you have not maxed out, you can receive cash for the open balances to improve your liquidity. Many personal finance experts feel maxing out credit cards to acquire emergency cash for unemployed consumers represents the “least bad” option that charges interest for access to cash.
Unlike a credit card advance, a home equity loan gives you relatively quick access to a large amount of cash. Applying for a home equity loan makes sense for someone who is unemployed, yet has enough cash to live on for a month or two. A large amount of emergency cash for unemployed workers is ideal for long-term stints without a full-time job. Since the housing market meltdown of 2007 and 2008, lenders have not approved as many home equity loan applications. If you are considered part of the senior demographic, you might be eligible for a reverse mortgage. Lenders typically do not require monthly payments on reverse mortgages, as long as the borrower lives in the home.
If your financial situation has turned desperate, you should consider leaning on a charitable organization to help you ride out the storm. Charities like the Salvation Army offer financial assistance, as well as aid in the form of food and household supplies.
It seems counterintuitive. After all, payday loans are based on borrowers ensuring repayment of short-term loans by putting up paychecks as collateral. Nonetheless, it is possible for unemployed workers to receive emergency cash by taking out payday loans. Just remember that not every lender permits payday loans for anything but paychecks as financial collateral.
Payday loans represent one of the shortest term financing strategies available for unemployed borrowers. A growing number of payday lenders no longer require income from a job for payday loan collateral. Many payday lenders have expanded the collateral requirement to include income sources like pensions, Social Security, and unemployment benefits. As we mentioned earlier in this article, the average wait for unemployment benefits to kick in is about three weeks. For many emergency cash for unemployed cases, three weeks is too long to wait for a boost in cash flow.
Let’s review the pros and cons of taking out a payday loan to generate emergency money.
After you submit the correct information, many payday lenders approve loans within a few minutes. Lenders rarely require borrowers to complete long applications and wait several days to learn about the status of a payday loan application. Many payday loan applications receive approval on the same day of submission. Emergency cash for unemployed workers can reach a bank account as soon as the next business day. Online payday loan applications allow you to submit several applications on the same day and choose the lender offering the most generous borrowing terms.
Standard bank loans may require the submission of more paperwork than the paperwork required by payday lenders. You also may have to wait longer for a bank to decide on your loan application. When you need emergency cash to help you through unemployment, you cannot afford to wait on a standard lender to decide in your favor. Payday loans might be more convenient than standard bank loans, but as we will see later in this article, borrowers pay higher interest rates for the convenience of accessing cash via payday loans.
You have heard the term “jump through hoops.” In the world of emergency cash for unemployed finances, jumping through hoops means fulfilling numerous requirements imposed by traditional lenders, such as banks and credit unions. Payday lenders require little, if any information beyond your name, address, phone number, and type of collateral. You might only need enough cash to help you get through the next two weeks, which means you can put up your last paycheck as collateral to receive instant access to emergency cash for unemployed reasons. One of the most effective ways to limit the requirements imposed by a payday lender is to have an active checking account.
Traditional loans offered by banks include several financial restrictions, such as a limit on how much money you can request. Moreover, failure to pay back a traditional loan triggers higher late payment fees and penalties. Some payday lenders may allow for a grace period before penalizing borrowers for late loan payments. As a first time borrower, if you pay back the first traditional bank loan on time, the lender will increase the limit on a second bank loan request. Payday lenders are more open to issuing higher amount for first loan applications, which gives you access to more cash for meeting emergency financial obligations.
With short repayment length of terms, payday loans allow borrowers the potential for making several on-time payments within short periods. The result can be several positive impacts made on your credit report (assuming that your lender reports to the payments to the credit bureaus, which may not always be the case). One bank loan, with a repayment term that can last a couple of years, may not make the same impression on your credit score. Moreover, over the course of two years, you can experience the disruption of your main source of income. Loss of income quickly turns into one or more missed bank installment loan payments that negatively influence your credit report.
The number one disadvantage of taking out a payday loan stems from the inability of a consumer to meet every repayment term. Also, because the repayment term for a payday loan is short, the interest charged by a lender can be higher than with other types of loans.
Standard bank loans require borrowers to repay a clearly defined percentage of a loan each month, with interest accumulating on an annual percentage rate (APR) basis. As one of the more onerous installment loan APRs, credit cards can exceed 30 percent interest charged annually. However, payday loans can soar to an APR as high as 300 percent because of the high cost for the lender.
Payday borrowers do not have much financial flexibility because of the need to receive emergency cash to handle short-term bills. High fees and interest rates can force borrowers to take out additional payday loans to fulfill the payment terms of previous loans. “Payday loans encourage a cycle of debt thanks to high rates of interest, as well as high repayment installments,” says Regina Blackwell, who works for credit counseling service Transformance. “In most cases, the client will be unable to repay the debt by the due date. What happens next? Another costly loan is secured to cover the difference.”
Consumers that do not read the fine print of a payday loan agreement can discover fees tacked on because of failure to abide by payday loan provisions. Payday lenders pursue every legal option to collect outstanding loans, such as using third-party debt collectors to go after delinquent borrowers.
Savvy consumers prepare for worst-case scenarios that include unemployment. Most consumers live paycheck to paycheck, which leads to the need for requesting emergency cash for unemployed reasons. Before taking out a loan or committing to a financial arrangement that costs you interest, try to raise emergency cash by holding a yard sale or working a second job. If you need emergency cash quickly, one option might be to take out a payday loan. Just make sure you can pay it back on time to avoid getting behind a debt snowball that can overrun your finances.