Financial emergencies can appear in a variety of different forms, like an unexpected medical bill or a significant car or home repair. Although life often throws unexpected expenses in the mix, most Americans are unable to cover such a cost with ease. In a recent study, nearly two-thirds of adults stated they would have a hard time paying an expense that was not anticipated if the cost exceeded $500, while 45% shared they would need to borrow money.
One of the smartest ways to avoid financial speed bumps caused by unexpected bills is to have an emergency savings account set aside where automatic additions are contributed each time a pay-check comes in. However, when tapping into an emergency savings account is not a feasible option, consider the following alternatives.
Negotiate a Payment Plan
If you’re opposed to utilizing consumer debt as a way to pay for large expenses not covered by emergency savings, your best bet is to negotiate a payment plan when possible. Auto repair shops, medical offices, and in some cases, home repair service providers or contracts may be willing to entertain a discussion about accepting payment over time instead of a single, upfront payment. Before presenting a payment plan as an option, consider what monthly cash flow allows and the time frame in which the full balance will be repaid.
Select an amount that is affordable and does not put too much of a strain on the budget. Remember, negotiating a payment plan is not an option with each creditor, but it is always worth an ask if the cash simply isn’t on hand.
Consider Loan Options
Personal loans that are either secured or unsecured may be a smart alternative to a negotiated payment plan. Taking out a personal loan without collateral requires a strong credit history and score, and the lender may also need proof of income and an explanation of how the loan proceeds will be used. An unsecured personal loan is beneficial, however, because it provides a lump sum that the borrower repays over the life of the loan agreement. A secured loan, like a local auto title loan that is offered based on the equity in a vehicle, does not require a credit check. These are available from a number of reputable operators such as The Net Lender.
Like a secured loan, however, borrowers who utilize a secured loan receive a sum of money which can be used to cover unexpected expenses with the peace of mind that the balance will be paid over time on a fixed, predictable schedule. Borrowing to cover large expenses is a sound option, but it is necessary to evaluate the affordability of a new loan payment in addition to other monthly expenses.
Use Promotional Offers
Another method for paying unanticipated bills involves promotional offers through credit card companies. For instance, a medical office may have a partnership with a credit card company, providing patients a simple way to pay for large medical bills not covered by insurance. In some cases, credit card providers catering to health care offices provide a new credit line to a patient in need with a zero-percent interest rate for a set period of time. Taking advantage of this offer, when available, works similarly to negotiating a repayment plan, but the amount of the monthly payment is determined by the individual borrowing the money, not the creditor. So long as the full balance is repaid before the promotional period ends, there is no interest charged on the credit card purchase. Other unexpected bills may also be paid with a credit card that is already established, but borrowers should be aware of the interest that may accrue if the balance is not eliminated quickly.
Unexpected bills are a part of adult financial life, but without the safety net of an emergency savings account, these expenses can wreak havoc on one’s wallet, credit, and morale. While working on building an emergency savings, consider your options for establishing a repayment plan, taking out a secured or unsecured loan, or using a promotional offer from a credit card provider to spread out the burden of repayment over time. With any method, take the time to read the terms and conditions, and be sure to review your budget so you know what makes the most sense for your monthly cash flow.