Sudden debt occurs when an unforeseen expense requires you to charge payment to your credit card or take out a loan. For example, maybe you’ve been rushed to the hospital after breaking your ankle on a patch of ice, but you don’t have sufficient cash in your bank account to cover the bill. Sudden debt can take a variety of forms in sense to let you know how to borrow money fast, but the end result is the same. To eliminate it, you will need to be proactive about coming up with a budget and a financial solution.
Note the Interest Rate
Regardless of the reason, the most troubling aspect of sudden debt is the interest rate that debt accrues until you satisfy it in full. The longer you take to pay back the money, the more you will be adding to it in interest payments. In some cases, this results in an inability to pay it off for several years, depending on how large it is. Before you make a budget to start paying back the loan or line of credit, determine the interest rate and decide how you will handle it.
If necessary, contact the lender to ask how the interest rate will add up over time. If you know what your payments will be with interest added on, it will be easier to deal with sudden debt. You’ll have a list of options and you’ll know the precise outcome of each. This makes budgeting and planning much easier to handle.
Dealing with sudden debt might mean you have to put off something you’ve planned for the near future. For example, if you’ve been planning a ski trip but you’ve just had to pay $4,000 in car repairs, you might have to postpone the trip. While this might seem unfair and cruel, you’ll feel better about taking a vacation or making a large purchase when you don’t have debt hanging over your head.
Alternatively, you can substitute plans for something that costs less. You’re dealing with sudden debt, so the ski trip is off, but maybe you can take your family to a nearby state park for a weekend to camp. The money you save will go toward the vacation but you don’t feel as though you’ve been cheated out of something you want.
According to Barry Yeoman of AARP, sudden debt isn’t always the consumer’s fault–or, at least, not directly. Perhaps you accidentally overdrew your checking account and were hit with hundreds of dollars in overdraft fees. The bank is unlikely to be sympathetic; after all, this is how they make money.
If your sudden debt is through no fault of your own, or if you feel that you have been mistreated, it is important to contact a consumer protection agency for assistance. Even if you did have a hand in your own financial demise, you might be able to learn tips and tricks to keep the same mistake from happening again. Furthermore, it is important to protect yourself against future mistakes. Perhaps you should set up overdraft protection at your bank, for example, through a savings account or credit card.
Sudden debt is no picnic, but you can dig yourself out of the whole. Make a plan and stick to it, and make sure you start saving up so it doesn’t happen again.