You’re not alone if you feel like you live paycheck to paycheck with little or no savings; many Americans do. Maybe you have not yet recovered from a pandemic furlough or maybe you lost your job and have not been able to catch up. Although experts generally say you should have six months’ worth of savings tucked away for a rainy day, this can be a tall order when inflation rises faster than wages. When an unexpected expense lands on your door, utilizing your own cash can be the best way to pay for it. However, it’s not the only way.
Here are some alternate ways to pay for unexpected expenses when you need extra cash. There are pros and cons to each so be sure to consider what will work best for your current needs and your financial future.
1. Credit Card
Credit cards may be an easy way to pay for an unexpected expense, especially if you are able to pay off your balance each month. If you cannot, you will often accrue interest, and just making minimum payments can result in it taking years to pay down debt. Additionally, if you miss a payment, penalties can be stiff—plus late payments may negatively impact your credit rating. On the other hand, with a good credit score and history, you may be eligible for a zero-interest credit card, or a credit card loan which is essentially an unsecured loan from your credit card company.
2. Borrow from Friends or Family
A short-term loan from a family member or friend may seem like a good idea, however it doesn’t always turn out as expected. If you have difficulty paying back the money you owe, it has the potential to jeopardize the relationship with the individual and spill over to other members of your family or circle of friends. If you decide to go this route and can find a willing person to loan you money, you may want to memorialize the terms of the loan with a written document, such as contract, explaining the terms and conditions you both can agree upon and sign.
3. Take Out a Personal Loan
Whatever your unexpected expense, a personal loan may be a more viable solution than using a credit card or other high-interest, short-term loan. A personal loan of $1,000 to $25,000 allows you to borrow money to pay for the expense and then pay back the loan over a set term at a fixed interest rate with payment terms that fit your budget and cash flow. You can usually choose the day of the month when payments will be due. Unsecured loans, with no collateral required, are often available from banks, credit unions, and personal finance companies, as well as secured loans. Generally, the higher your credit score, the lower your interest rate may be. Lenders will also review your credit history on your credit report and your debt to income ratio. Be sure to compare interest rates from different lenders and check the lender’s reputation with the Better Business Bureau.
4. Build Up an Emergency Fund
One of the best ways to pay for an unexpected car breakdown, new appliance, veterinary bill, emergency dental work, or whatever else life throws at you, is to build up an emergency fund. In doing so, you will have the cash on hand to pay for unexpected expenses without the need to take on additional debt or risk not paying other bills on time. Many financial planners recommend setting aside at least three to six months’ worth of living expenses depending upon your current financial obligations. For example, if you work in a secure industry, have no dependents, are relatively healthy, have a reliable car, and a spouse or other family member you could rely on for financial assistance, you may not need extensive savings in your emergency fund. However, if your employment is unstable or you’re a gig worker, you have dependents, own an older home, or have a medical condition, a larger amount will likely be a better savings target.
Looking for a lender who knows that sometimes unexpected expenses happen? Mariner Finance understands what you’re going through, and we may be able to help. Our dedicated team can review your financial situation and provide you with quick and efficient customer service detailing potential loan options. Apply online and receive a personalized offer that will not affect your credit score.1
1 The process uses a “soft” credit inquiry to determine whether a loan offer is available, which does not impact your credit score. If you continue with the application process online and accept a loan offer, or are referred to a branch and continue your application there, we will pull your credit report and credit score again using a “hard” credit inquiry. This “hard” credit inquiry may impact your credit score.
