5 tips for paying unexpected expenses

Being hit with unexpected or urgent expenses can be a heavy burden. Not having the right financial resources can be financially debilitating, whether it’s home repairs or an unexpected medical bill.

Fortunately, there are options if you encounter unexpected financial problems. There are financing options – such as loans and credit cards – and you may have access to hardship or repayment programs. In the event of an emergency, you may not have all the time in the world to slow down and consider every option in depth, but make sure you are at least aware of the resources you have at your fingertips.

5 tips for paying unexpected expenses

Here are five options to consider when unexpected expenses come your way. If you have the opportunity and time to do so, consider each option and weigh it against your current situation.

1. Ask about a payment plan

Depending on the type of costs, you may be able to set up a repayment plan with the company or institution you owe. If you need to pay a service provider for unexpected expenses, they may have programs that allow you to pay your debts in weekly, biweekly, or monthly installments, with or without interest.

Many medical providers also offer payment plans to make healthcare costs affordable. You can split the amount owed into small monthly payments that fit your budget. In fact, most medical debt can be repaid without the added interest or fees if you stick to the bargain by making the agreed-upon monthly payments.

2. Put it on a credit card

You can get a 0 percent APR credit card if you have good or excellent credit. These cards come with a promotional interest-free period, usually between 6 and 21 months.

Ideally, you only want to spend as much as you can afford to pay off the balance within the promotional period. Otherwise, you will pay interest on the remaining amount after the introductory period.

If you don’t qualify for a 0 percent APR credit card or would rather use another card you already have, make sure you come up with a strategy to pay off your outstanding balance sooner rather than later. Consider reducing your spending plan to free up money for additional credit card payments. This way, you won’t spend several months or years paying off the card, and you minimize the interest you pay to the credit card company.

3. Consider a personal loan

If you need money that you do not have quickly, it is best to apply for a personal loan. Consider using the lender’s online prequalification tool (if applicable) to determine if you qualify for financing and view potential interest rates to calculate your monthly payment before applying.

There are seemingly thousands of loan options to choose from. To avoid becoming overwhelmed by the process, make sure you know exactly what you need and what you qualify for before you apply.

For example, there are loans for almost everything, including emergency loans. However, these often rebrand personal loans and have the same interest rates as traditional loans. The advantages and disadvantages are therefore comparable to those of normal personal loans.

Be aware of loans with interest rates above 35.99 percent and lenders that claim instant approval without a credit check. It is common for predatory loans, such as payday, point-of-sale or title loans, to be branded as distress loans. These loans often have sky-high interest rates, virtually guaranteed to create a dangerous debt cycle.

While you can get a loan from traditional banks, credit unions or online lenders, Liz Modesitt, virtual banking manager at First Bank, mentions that credit unions often have the lowest financing costs.

However, consumers should note that membership is required before a loan can be granted.

“This can usually be met by opening a checking or savings account with the credit unit,” says Modesitt. “Borrowers will want to consider whether the interest savings outweigh the additional requirements,” she adds.

If you need money quickly, online lenders may be the better option. Al Goldstein, CEO of Avant, says the new wave of online lending platforms use advanced underwriting methods to accurately assess risk.

Online lending platforms are positioning themselves as the best for consumers “who are in an emergency situation,” Goldstein says. “Applications take just a few minutes and consumers can receive the money the next business day.”

4. Consider a home equity loan

A mortgage loan is another way to cover unexpected expenses because it allows you to convert some of the equity in your home into cash. Still, it should only be used as a last resort because it acts like a second mortgage and you could lose your home if you fall behind on payments.

Most lenders allow you to borrow between 80 and 85 percent of the equity you have built up in your home. Your equity is the difference between what the home is worth and what you still owe on the mortgage and any other outstanding loans against the home.

Interest rates on home loans are typically competitive, but you need good or excellent credit to qualify. The money is paid out in a lump sum and paid out in equal monthly installments over a specified period.

5. Conduct a financial audit

If a payment plan isn’t an option or you’d rather not use debt to pay for unexpected expenses, conduct a financial audit. You may be able to adjust your budget or cancel subscriptions to free up some extra money each month. Consider the following ideas as you review your monthly budget and spending habits.

• Rework your short-term budget to create more disposable income.
• Sell ​​things lying around your house that you no longer need.
• Cancel any additional services or activities for a short period of time until you get back on your feet.
• Use your creative talents and earn extra money as a freelancer.
• Take on odd jobs or overtime at work to increase your income.

How to plan for unexpected expenses

Instead of sending you into a downward spiral due to unexpected expenses, prepare for these types of inevitable events in advance.

• Setting up an emergency fund: Each time you get paid, set aside a small portion of your income in an emergency fund. It is important to get into the habit of doing this consistently. You can even set up automatic deposits into your savings account every payday. As a general rule, your emergency fund should have three to six months of living expenses.
• Do not use credit cards to the maximum: Credit cards are not the ideal first choice to cover unexpected expenses. Especially if the card has a particularly high interest rate. However, it’s important to have this option available for true emergencies – when you have no other way to get the money needed for unexpected expenses. With this in mind, make sure you get the most out of your credit card so you don’t leave room for potential emergencies.
• Create a budget with money for unexpected expenses: Preparing and following a budget is good practice. Doing this will help you control your impulse spending and help you manage your money more effectively. A monthly or weekly budget can also be helpful in protecting you from the impact of unexpected expenses if you build money into your budget to cover such financial problems.
• Increase your credit score: Working on your credit score in advance can make it easier to access personal loans or credit cards with competitive interest rates, should you need to access credit or borrow money in an emergency.