More steps you can take to plan for an emergency

Most people fail to think ahead. That means they get caught up in a panic when an emergency arises and, more often than not, end up taking short-term finance at very high rates of interest. This does nothing more than make the emergency worse. So, even though you may already be on the margin and living paycheck to paycheck, there are a few simple steps you can take to save yourself from the pain of these high-priced loans. The first involves joining a credit union. Almost every major city across the US has a credit union and their membership rules are reasonably easy to satisfy, being aimed at working families. Running a basic checking account is free at many credit unions or charged at a nominal level if you have your paycheck paid into the account. With an account in place, you are entitled to apply for a personal loan if a crisis arises.

In most cases, approval comes through within one or two days. Some unions allow people to hold an application form on file so that a loan can be processed more quickly. The majority of unions charge around 18% for smaller amounts of short-term finance. The rules for larger amounts varies but the aim is to provide affordable finance to families in need. When other forms of finance can be charging 200% and more interest per year on short-term loans, credit unions are well worth investigating.

If you prefer conventional banks, some offer short-term loans of up to $500 if there is a crisis. You need to read the small print carefully before you sign up. The terms vary. Some banks require you to hold the account for a given period of time before you qualify for a loan, others have penalties if you fail to repay the loan within preset periods of time. Worked out over a year, the interest rates rise above 100% but they are still cheaper than the other short-term loans. Some credit unions and banks allow you to have a credit card linked to an overdraft facility. Under normal circumstances, a check written with inadequate funds in the account will be refused payment. But with the right agreement in place, the unauthorized overdraft will be considered a cash advance on the credit card.

This is more expensive than a conventional overdraft but it will give you access to funds you might not otherwise get. Finally, you can search for a company still offering a Home Equity Line of Credit (HELOC) facility. These have become more difficult given the credit crunch and falling property values, but if you do still have a reasonable equity in your home, you may be able to find a bank or finance company prepared to lend. If you are lucky, you should never sign up for a significant amount of money. Go for the minimum amount available. This is only intended as an financial emergency facility to avoid you having to take a payday loan.