At any moment, you can face an unexpected expense that could make it difficult for you to support yourself. It might cause you to worry if you’re going to make rent for the next month or afford to buy enough food for the week. Despite the gravity of the challenge, it can be possible to manage an expense that comes out of nowhere. Here are four ways that you can handle an unexpected expense.
1. Using your emergency fund
An emergency fund is an amount of money you have set aside to pay for unexpected expenses. Some of the unexpected payments you have to make may include home repairs, car repairs, medical expenses, and possibly even unemployment. I
t’s recommended that you have at least three months’ expenditure placed in your emergency fund. You may even find it useful to put your money in a variety of accounts with each one having a specific emergency purpose, such as one for house repairs, and another for car repairs. It can help you be less likely to borrow money from your emergency fund when you know there’s an important specific purpose it might need to be used for in the future.
2. Taking interest-free credit
Some unexpected expenses can potentially be paid through using interest-free credit. One example is funding a replacement for a car that’s beyond repair. Some dealers may offer you a 0% finance to pay for your replacement car.
The same thing could also possibly be done for easing the cost of a new boiler. While interest-free credit can be helpful in paying for a variety of things you may need to be replaced, it’s important to be careful when using this option. Be sure to only borrow the amount you can afford to.
3. Using your savings
It can be helpful to have a cash savings account that can be accessed without penalties. This can be a way you can avoid borrowing money to pay your bills. The important thing to remember is to make sure the money isn’t earmarked for another purpose, and continually check if there will be any penalties for withdrawal.
Avoid using your investments, because these are meant for medium-to-long-term saving. Taking money out of your savings should be done lightly. Particularly the money you’re saving for retirement. A Pew Research poll conducted in 2016 found that almost 20% of senior citizens had not retired and were still working full-time. Borrow from your savings as cautiously as possible so you can still be able to retire when you become a senior citizen.
4. Getting a personal loan or credit card
The way that credit cards and personal loans work is you’re able to borrow small amounts at a fixed rate of interest. There’s a fixed repayment period as well. There are a variety of loans that can be found, so make sure you review many different loans to find the best deal.
While credit cards provide a simple way to pay an unexpected bill, it should be kept in mind that they can be expensive. Credit card interest rates can often be as high as 20%. As a result, if you fail to pay the debt off quickly, you’ll be paying a large amount of interest. It’s best to avoid payday loans since they tend to come with high-interest rates.
For repairs in your home, you can consider using home equity loans. Home equity loans use your home as collateral based on the amount of worth your home has. Use these loans cautiously, as you can risk foreclosure if you’re unable to pay it back. It’s been found that about one in every 200 homes will be foreclosed upon.
You may also consider using a small personal loan to finance expected purchases such as a diamond engagement ring. Diamonds are often chosen for engagement rings because they symbolize eternal love, as they’re the number one hardest natural substance on the planet. However you choose to use a personal loan or credit card, they should always be used as a last resort because you’re spending money you don’t have.
Dealing with an unexpected expense can cause a lot of stress and anxiety. The best way to deal with anything unexpected is to find a way to be prepared. All of these options can help you be prepared whenever unexpected expenses come.