As I get ready to head out into the real world, I'm a little concerned about my financial situation. I don't have a ton of cash, and the only thing of value that I own is my car. I have some credit card debt, which I know is bad. I do have a decent job that I'll be taking, so I'll have some money coming in soon, but I am worried about my financial situation in the short term. What can I do to make sure that I pay my bills and can cover sudden expenses?
Money trouble is, unfortunately, a reality for a great many Americans. Studies show that most of us would have to go into debt to handle a sudden expense of just $500. That shouldn't be a lot of money, but, to many of us, it is.
As you are no doubt aware, there are some perfectly healthy sorts of debt: mortgages, for instance, have tax advantages and give us an immensely valuable asset in exchange for low-interest debt. And student loans can be good investments, too, provided our education delivers on its promise of increasing our earning power. And, of course, you also know that you should be saving money and avoiding short-term debt. But the practical reality is that sometimes, in specific situations, we need to rely on short-term debt — and knowing how to get the right loan can help.
The fact that you own a car gives you one option: a car title loan. In a car title loan, you turn the title of your car over to a lender in exchange for an injection of cash. It's a short-term loan, and when you pay it back, you get your car's title back. Used properly, a car title loan can give you the cash you need to cover a near-term need.
Of course, you need to have a plan for paying the loan back. The car is the collateral in this loan, which means that it will become the property of the lender if you fail to pay it back.
Short-term debt — a category that also includes payday loans and credit card loans — requires you to be smart and vigilant about paying back lenders. It can be a big boost at a critical time, but it's best used sparingly and carefully, so that you can enjoy the benefits of the cash influx without becoming trapped in a cycle of unhealthy short-term debt.
Finding the right terms and the right lender is key. Look for tools that let you compare title loan companies online so that you can get the best rates. Also key, of course, is making sure that you pay back your loan without taking out another to cover it. Remember, too, that you can sometimes buy yourself some breathing room by working with the people you owe: you might be surprised to find that a credit card will forgive interest on a missed payment (the first time, anyway!), or that a utility company will give you a little extra time to cover your bill.
Once you're on your feet, be proactive about setting yourself up to avoid a future financial pinch. Start saving as much as you can. Be careful about how you shop — use internet tools to find the best deals, and don’t spend big on frivolous items. Focus your spending on the essentials, and don’t compare your immediate post-grad living situation to that of established professionals or older folks, like your parents. They took years to acquire the standard of living that they have today, and they likely built it up by making smart financial decisions back when they were your age. Emulate their financial knowledge, not their lifestyle: you’ll get there eventually, but now is not the time to rack up credit card debt as you try to get every last bit of furniture or clothing that you think you need.
Through your diligent saving, try to build an emergency fund. Experts recommend an emergency fund that covers at least 3 months' worth of expenses, and having one will help you stay a step ahead of sudden expenses without having to go into debt.
If you’re careful with your money, you can take advantage of short-term debt in a safe way and emerge in healthier financial shape. Take that chance to shore up your finances and save for the next crisis. Good luck!