Money, Banking and financial market As the end of the month approaches, you realize that you probably will not be able to pay the next month’s rent. Describe both an informal and formal...
As the end of the month approaches, you realize that you probably will not be able to pay the next month’s rent. Describe both an informal and formal financial instrument that you might use you to solve your dilemma.
A significant informal instrument you could use to pay your rent is one that many people -- myself included -- don't bother with, because it takes a little time and effort: sell some stuff! Everyone has spare stuff lying around they never use; I have tubes of posters from my theater job that I haven't looked at in months! Dave Ramsey, the financial guru, recommends looking at everything you pay a bill on; if you have a car that you're paying off, sell the car and buy a junker.
To formalize this option, you may pawn your items and buy them back at a later date. The contract you enter into with the pawn shop is informal itself, but the selling is not to a private individual and so it is "formalized" by the nature of commerce.
This is a hard situation and I am sure that this is a reality for many people. Before I go the loan route, which is something that should not be taken off the table, I would look for other alternatives. Can you apply for another job? Can you offer to help with the apartment complex? Are there any other ways in which to supplement your income? These are the questions that I would think about first. Only after I exhausted these avenues would I think of asking for a loan. In fact, I would downsize before the thought of a loan.
In the short term you need to find a way to get the money to pay the rent. Borrowing from friends or parents would be an informal solution; credit card cash advance or loan would be more formal. An instrument you could use in the future to avoid this situation is to create a very logical and detailed BUDGET of expenses and look to see where you can spend less on non-essentials so that you can pay the essential -- rent.
I think the most common informal manner of dealing with an unfortunate situation like this is that some people simply don't pay the rent, don't tell the landlord, and hope they can scrape together enough, soon enough, that they don't get evicted. I find many people just ignore financial problems and hope they go away. You could also informally offer to work in exchange for rent, maintenance, painting the place, etc.
You could get a loan. If you went to the bank, you could get a formal loan. If you have credit cards, you could use one (maybe, if your landlord takes credit cards or you get cash). Informally, you could also borrow the money from a relative or friend. You don’t really have any good options here. Try to find a second job.
You simply have to find some way of boosting your income for that month. This could either be through taking on extra shifts or hours at your work, or through gaining a secon job. You might be able to negotatiate that you pay more the second month and pay less this month. Alternatively you might have to ask for a loan.
For an informal instrument, you could give a simple IOU. Of course, this would mean that the landlord would need to accept it. But the IOU would be informal because it would just be a promise that you will repay, but with no force of law.