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5 Ways to Deal With Unexpected Expenses - In The Order You Should Consider Them
| Published: 31st January 2020 09:47 |
No matter where you live and how much money you earn, no amount of financial planning can reduce your chances of having to deal with unexpected expenses. Home repairs and maintenance, vehicle costs, or sudden family emergencies can test your financial wherewithal with little to no notice. If you find yourself in the unenviable position of having to pay a bill you didn't expect – don't panic – just evaluate your options and choose the one that best suits your specific situation. To help you do that, here are five ways to handle unexpected expenses, in the order you should consider them.
Tap Your Emergency Fund
If you had the foresight and ability to put some money aside for emergency expenditures, now's the time to use it. Since most financial professionals recommend that you keep at least the equivalent of three months' salary on hand, you should have enough put away to cover most kinds of emergencies. If you're one of the estimated 27% of Britons that have no emergency fund – you'll need to move on to some other options.
Turn to Your Savings
If you're like most people, there's a good chance that you have a savings account that you've been using to accumulate money for your retirement. If you have such an account and are able to access it without paying any kind of penalty, it's your next best option to deal with an unexpected expense. It's important to remember, however, that even if there's a penalty involved, it still could be cheaper than what it will cost you to borrow money. For example, if you need to withdraw money from a CD early, you might forfeit some interest and pay a fee, but that could be worth it in certain situations – so do the math before making a decision.
Use Interest-Free Credit
Sometimes, finding a way to pay an unexpected expense just means buying yourself enough time to gather the money you need. If you have a decent enough credit score, you may be able to qualify for a credit card with an interest-free spending period for new customers. If you can obtain one, it can give you the flexibility to spread the costs of your unexpected expense over as many as 26 months. It's important, though, that you make sure to keep up with whatever minimum payments are due and pay down the balance before the interest-free period ends, or you could end up in worse financial shape than you started.
Borrow From Family
Although it's not something that many people will be excited to do, another option you can use to cover an unexpected expense is to try and arrange to borrow the money you need from family members. If your expense is a matter of necessity, and not due to poor planning or your spendthrift tendencies, there's a good chance that your loved ones will understand and agree to help you if they have the means. If you plan to do this, though, make sure to work out a future budget that you can use to demonstrate to whoever's lending you the money that you'll have the spare cash each month to pay them back in instalments. If you're lucky, they won't expect you to pay any interest, so you'll be able to clear the debt a bit faster.
Make Use of Conventional Credit
As an option of last resort, you can use various types of ordinary credit to take care of your unexpected expenses. That means using a credit card, an overdraft, or some other kind of unsecured debt. You should only go this route after you've exhausted all other options. That's because you'll end up racking up significant interest, driving up your repayment costs. That makes it easy to fall into a debt trap that's difficult to climb out of. With the average UK household now carrying £15,400 in unsecured debt, it's a situation that's become very common these days, and that's something you should avoid if at all possible. If you have no other options, though, make sure to consult Choose Wisely before you make a decision – it'll give you the information you need to choose the cheapest way to cover your expenses.
The Bottom Line
If you're facing some kind of unexpected expense, you should now know what your options are, and which one suits your situation best. If you're reading this and you don't yet have an unexpected bill to worry about, the takeaway is that it's worth making some sacrifices now to build up an emergency fund or some additional savings before you need them. Having some money put aside is by far the best way to account for the unknown, and if you're in a position to do that, don't wait a moment more. You could save yourself an awful lot of trouble and long-term financial stre
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