You have have been working to reduce your debt. Then the unexpected happens.
Your car needs new brakes. The roof needs fixing. You are faced with an unexpected emergency. What do you do?
The best approach is to expect the unexpected, and prepare to cushion yourself when unexpected emergencies arise. There are two ways to cushion yourself.
First, a savings plan will allow you to build up a “rainy day fund” or cash reserve to use in emergencies. Some people even set up two savings plans: a long term plan, such as an RRSP for retirement, and an emergency cash fund that can be accessed when required.
If you are saving $200 per month, you may put $150 in your RRSP, and the remaining $50 in a savings account that can be accessed immediately.
It is important to remember that unexpected emergencies should not hinder your long term savings plan, because we all face unexpected emergencies.
Second, access to credit may be used in emergencies. For example, you may set up a line of credit for emergency use. If your car breaks down and you must get it fixed, having access to a line of credit may be of assistance. Contact your bank for further information. It is always best to set up a line of credit before you need.
A word of caution. Credit is dangerous, and you should only borrow to spend in emergency situations. If you do require cash in an emergency situation, your savings plan is the first place to go for cash; borrowing should be a last resort.