There are so many different family emergencies or An Emergency Expense you can run into that might require you to come up with cash quickly. For example, you might have a medical expense, or maybe your child needs something for school or an activity. Your family car might break down, or you could have a repair to your home that has to be made.
The emergency expense might be as significant as covering a few months of expenses if you lose your job, get hurt, or become ill.
Regardless of the specific circumstances, the following are things to know and tips for paying for an emergency expense.
Many of us have things that are worth more than we might realize. For example, if you have a car that doesn’t run anymore, some companies will buy it and maybe even pay for towing.
Car-buying companies will often buy vehicles that are otherwise salvage or junk cars, are wrecked, or are considered clunkers.
Along with selling an actual physical item you have, if you have money in investment accounts, it might be better to sell some of your stocks than to use a credit card. You could have to sell them at a loss, but still, it can make more financial sense than paying interest. Just be aware there might be tax consequences if you choose this option.
Other things you can sell include furniture and clothes.
Apply for a Personal Loan
A personal loan can be a way to get cash for an unexpected expense relatively quickly if you qualify. Like other loans, your approval and interest rate on a personal loan depends on your credit score, debt-to-income ratio, and your income. A personal loan is a type of installment loan, so you get a fixed amount of money.
Personal loans usually range from $1,000 to $50,000, paid in a lump sum. Personal loans aren’t typically secured, so you don’t have to use collateral to obtain the funding.
Terms of repayment can range between one and ten years. You can use personal loans for almost anything. Interest rates are fixed, so they don’t change over the life of the loan.
The process of applying is a lot like a credit card application.
To be approved for most personal loans, you need a credit score that’s at least in the mid-600s.
The lender will determine your terms, loan amount, and interest rate.
The benefits of a personal loan include its flexibility and versatility.
You may find the interest rate you’re offered is lower than a credit card, and the borrowing limits are higher in many cases. If you have an excellent credit score, you might get interest rates of anywhere from 6-8% on a personal loan.
Personal loans are pretty easy to manage overall too.
The downside is that first, while the interest rate may be lower than a credit card, it can still make borrowing money expensive.
Personal loans can have fees that make them a more expensive way to borrow money, and there are also penalties. Some personal loans include an origination fee of 1-6% of the loan amount. The fees are to cover loan processing. If you prepay a personal loan balance, some lenders will charge you a penalty.
Be careful about fine print before you get a personal loan.
The payments are also usually going to be higher than the payment on a credit card.
A credit card will often have a small monthly payment, and you won’t have a deadline to repay it as long as you’re keeping up. Personal loans will mean a bigger monthly payment and a set amount of time to pay it back.
You’re going to be increasing your debt, too, although, in an emergency, you may not have a choice.
A personal loan could be a viable option if you need funds fast. If you go through an online lender in particular, you may get funds in a few days. If you have a pretty good credit score and you have to use the funds for necessary expenses, it may be the right funding option.
If you can’t afford the monthly payments, or maybe your situation isn’t an immediate emergency, a personal loan may not be a good idea.
Open a Credit Card with 0% APR
If you have a decent credit score, you may be approved for a credit card with a 0% APR promotional period. This is a window of time where you won’t have to pay interest. Usually, it’s anywhere from six months to 20 months. You could potentially pay the balance down without ever incurring any interest.
If you can pay the money back before the end of the 0% interest period, this will be a better financial choice than a personal loan.
What If Your Credit Score Isn’t Good?
If you don’t have a great credit score and need money quickly, your options are more limited.
There are some lenders which are primarily online companies that do offer loans specifically for people with less-than-perfect credit. You’ll almost always pay a higher interest rate for these loans, though.
If you’re going to apply for a personal loan for people with bad or fair credit, you should compare offers to make sure you’re choosing the best one. Shop around before you make a decision.
Sometimes the options aren’t great when you’re dealing with an emergency expense, and you may have to pay for it in a way that will ultimately cost you a lot more money.
The best thing to do from there is to use it as an opportunity to think about how you’d handle an emergency expense going forward. This means you should start prioritizing an emergency savings account that is separate from your other money and is accessible if you need it.
Having an emergency fund should be your number one financial goal if you don’t already have one. If you start saving even a small amount now, it can go a long way if you have a future emergency.