Here’s how to effectively handle an emergency expense and prevent it from throwing you off-course.
A leaky roof. A sick pet. A last-minute trip. Unexpected expenses are inevitable but figuring out how to cover them can sometimes feel like an insurmountable challenge.
In fact, one in four Americans don’t have any money saved for emergencies. ¹
However, by carefully evaluating your options, you can help prevent an unexpected expense from throwing you off course.
First, consider some alternatives. Can you cover the expense by cutting back elsewhere in your budget? Is borrowing money from a friend or family member an option? Or do you have any assets you’ve been meaning to turn into cash, like an old smartphone or laptop?
If none of those options are realistic, using a credit card may seem like the best alternative — but that might not be true.
Not only do most credit cards carry high interest rates, but a significant expense could increase your credit utilization ratio, which is the amount you owe compared with your available credit. That can have a negative impact on your credit score. And, credit card debt can snowball fast, potentially turning an unexpected expense into long-term debt that weighs you down.
Depending on your circumstances, a personal loan may be a better alternative. Personal loans are installment loans, meaning you’ll have a predictable repayment schedule with a set payoff date. Your debt utilization ratio won’t be impacted, and you may be able to secure a lower interest rate than your credit card.
Many online lenders will allow you to check your rate options before applying for a loan with no impact to your credit score, making it easy for you to evaluate your options. Also, most online lenders offer fast decisions and quick funding. Once approved, the funds could be in your account within one business day.
When you’re hit with a money emergency, you probably need to track down funds fast. But taking a little time to evaluate your options can make a huge difference in making sure you’re making the right long-term decision.
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- “More Than Half Have Less Than 3 Months’ Savings,” July 21, 2021, Bankrate.com
