Life can be full of unexpected surprises. Some days your car won’t start. Other days your roof could be leaking while it’s pouring outside. And there are days when a surprise bill for an unexpected medical expense shows up in the mail. These expenses can create a lot of stress and worry while you try to figure out how to pay for them.
Having a plan for unexpected expenses can save you stress and help you get back to sleep.
Unexpected expenses can be stressful. But by taking a minute to assess your financial situation and review the options available to ease the pressure, you can find the best solution to handle the burden. Each unexpected expense creates a unique financial situation and requires its own solution. Fortunately, many tools and resources can help you find the right kind of relief.
Assessing Your Immediate Financial Situation
Start by asking whether you can cover the unexpected expense from your current cash reserve or by trimming your budget for a few months. This can be uncomfortable, but it’s a necessary step toward making the best financial decision for your situation.
So what happens if the gap is smaller than you thought? Cutting back on discretionary spending can be enough to get through a temporary financial crisis. If you have enough liquid cash to cover the shock, you can draw on it in the short term for minor unexpected bills. But for larger unexpected bills, you’ll likely need to seek external funding. In these situations, you’ll need to borrow the money, which can become a financial burden if it comes with a high interest rate.
Utilizing Personal Loans for Larger Surprises
When you face a significant unexpected expense, such as a home repair, you may need to borrow money to pay for it. For medium-to-large unexpected expenses, online personal loans can offer a practical way to cover the cost without draining your savings all at once. These are typically fixed-rate installment loans, meaning you repay what you borrow, with interest, in installments over a set period.
These loans usually offer lower interest rates than a typical high-interest credit card, which can provide real relief in an emergency. Because the interest rate and repayment term are fixed, you’ll know exactly how much you owe and when payments are due each month, making it easier to build the payments into your long-term budget.
Also compare interest rates, fees, and repayment terms across lenders. Watch for origination charges and prepayment penalties, and review all fees and terms before borrowing. The monthly payment should also fit comfortably within your long-term financial plan.
Tapping Into an Emergency Fund
An emergency fund is money set aside for unexpected events that can cause financial problems, so keep 3 to 6 months of living expenses in an easily accessible savings account.
If you’ve built one up, this is exactly what it’s for. Using your emergency fund to cover an unexpected expense means you won’t have to pay interest on a loan or take on high-interest debt. It will still sting to spend money you worked hard to save, but that’s the whole point of the fund: to protect you when something unexpected hits. You’ll want to replenish it as soon as you can, though that can happen gradually as your finances normalize.
In the meantime, using savings to pay unexpected bills is generally the best option. And rebuilding the fund doesn’t have to be expensive or difficult. Depositing a small amount each month will get you back to where you were before, sooner than you think.
Negotiating Payment Plans Directly
You can negotiate many bills for unexpected expenses. This is especially true for large medical bills and some utility bills. Contact the billing department as soon as possible to explain your situation.
Sometimes the simplest thing to do is call and ask for assistance. Billing departments can often reveal payment options you weren’t aware of, and the worst they can say is no.
Before borrowing money for an unexpected bill, contact the creditor and ask if they can set up a low-interest or interest-free payment plan. Many healthcare providers and utility companies offer financial assistance programs for people experiencing temporary hardship, such as a sudden job loss, a serious illness, or a natural disaster.
Speaking with your creditors can buy you financial breathing room and help you avoid taking on debt or draining your liquid savings.
Evaluating Hardship Programs and Forgiveness
The company that billed you for that surprise surgery, or hit you with a late fee after you were laid off, may have a hardship program for people in your situation. You just have to ask.
These programs are usually meant for temporary hardship. A utility company, for example, might reduce a household’s rate for a short period, say until the end of the season, after an unexpected drop in income, and some even offer a one-time grant.
Hardship programs can also help keep your credit score intact during an emergency, and many will waive late fees to make managing your finances easier during a stressful stretch.
Using Credit Cards Strategically
Using a credit card for unexpected expenses can work well, especially if you have a 0% introductory APR offer. That gives you a few months for paying off the expense interest-free. Just make sure you clear the balance before the promotion ends, or interest will start accruing on whatever is left.
For a standard-rate card, make the largest payments you can afford, since the balance can otherwise snowball into debt that’s difficult to repay. Treat a high-interest card as a last resort for emergencies. Pay it off as quickly as possible after you use it.
Consolidating Debt to Streamline Recovery
Managing several unexpected bills at once can get complicated when each one carries a different interest rate and due date. Consolidating that debt into a single payment, ideally at a lower interest rate than what you’re currently paying, makes it easier to keep track of your finances and stay on top of your payments.
You’ll come across a number of different terms while researching consolidation options. But the factor that matters most is your total cost of borrowing, not just the headline interest rate. Lowering that total cost speeds up your financial recovery. It can also give you the psychological win of seeing your debt shrink.
Navigating Emergency Income Options
Other ways to earn money, including freelancing, selling old electronics or tools, or picking up temporary work, can help bring in funds to cover an unexpected expense. This can still help, even if it doesn’t cover the full amount.
Treat every dollar you bring in this way as a direct offset to the bill. Then, put it toward the expense as quickly as possible. The faster you apply that extra income, the less you’ll need to borrow or draw from savings in the first place.
Creating a Post-Emergency Financial Audit
After you handle the unexpected expense, review the strategy you used. Auditing your plan this way surfaces lessons you can apply in future situations. This knowledge can help you build a better emergency fund and stronger financial habits before the next crisis hits.
Identify what worked and what didn’t. Did you have enough liquid cash to cover the expense immediately? Or did you have to scramble for funding at short notice? How did your conversations with billing departments and creditors go? Was it better or worse than you expected?
Write down what you learn so you can strengthen your emergency fund, your insurance coverage, your approach to creditor communication, and your financial foundation overall. This way, you can better prepare yourself for next time.
Exploring Alternative Community and Local Resources
Non-profit organizations offer grants for expenses. These include costs like utility bills, rent, home repairs, and even vehicle repairs so you can keep getting to work.
It’s worth seeking out a credit counseling service during a period of financial hardship. They can evaluate the debt you currently carry and help build a realistic spending plan to pay it down.
Building Resilience for the Future
It’s hard to fully prepare for the shock of an unexpected expense. But going through one is also a useful test of how well your current financial habits actually hold up.
An unexpected expense can even improve your financial situation. Start by reviewing your monthly budget. Look for ways you can cut back and redirect that money toward rebuilding your emergency fund. Then check the terms of your home, auto, and health insurance. Find out whether you can save money with a lower level of coverage or a higher deductible.
By preparing for the unexpected, you can turn potential financial disasters into minor blips. With good financial information on hand and the ability to make sound decisions under pressure, you can make sure you have enough set aside to handle whatever life throws your way next.
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