Do You Have Unexpected Bills and No Emergency Fund? These Are Alternatives

One morning, you head out to your car and it doesn’t start. Or, you have a medical emergency that requires major surgery. Maybe a pipe bursts in your master bathroom and does extensive damage. But you have no emergency fund, so how do you get emergency money?

Emergencies can strike at any time. An emergency fund can help, but 42% of those surveyed don’t have one. That means for two in five U.S. consumers, when something goes wrong, they need a way to get emergency money. We have five avenues for you to consider.

Make Quick Cash to Cover Emergency Expenses

Expensive emergencies are hard — both emotionally and financially. There are ways to get the money you need if you don’t have an emergency fund, but what about when you have to pay that money back? Or, what if you’re more committed to starting that emergency fund now? We have some ways you can make quick cash below to help with both.

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1. Put It on a Credit Card

Pros:

• Immediate access to funds
• Repay over time
• No additional application required

Cons:

• High interest rates
• Unpaid balances can add up
• Possible credit score impact

If you already have a credit card, it can be one of the easiest options in an emergency. But if you can’t afford to pay off the balance in full, you’ll be saddled with the payments for a while. On top of that, credit cards typically come with higher interest rates, and those extra fees can add up over time.

Bobbi Rebell, CFP® and personal finance expert at CardRates.com, recommends paying close attention to interest you’ll have to pay. If you have more affordable options available, it makes sense to consider them. 

“If you do find yourself adding credit card debt to an already bad financial situation, try to negotiate a lower interest rate with the issuer if possible,” Rebell adds. 

She also suggests applying for a credit card with a zero-interest introductory period. Check out our list of the best credit cards for that.

“Some of those can be as long as 18 months, which can give you some extra breathing room to work through your financial challenges.”

2. Take Out a Personal Loan 

Pros:

• Competitive interest rates
• Predictable payments
• Flexibility in how funds are used

Cons:

• Stringent approval processes
• Origination fees and prepayment penalties
• Possible credit score impact

Personal loans are easier to find than ever. You don’t even have to go through a local bank or credit union to get the funds you need quickly. Online lending marketplaces like MoneyLion or Credible make it easy to quickly compare pre-qualified offers from lenders side-by-side.

That said, a personal loan does come with interest and fees, so it’s important to consider the cost before you borrow. Kathy Gilchrist, founder and chief financial officer at Cardinal Bookkeeping & Advisory, said loans can come with downsides. However, she has an alternative solution that could save some money.

“Check on whether there’s a local nonprofit in your area with a program that could help with your situation,” Gilchrist advises. “I served on the board of a local nonprofit that had a program to provide short-term loans for people with emergency needs when all other resources have been depleted.” 

3. Borrow From Your 401(k) 

Pros:

• Repayment goes back into your account
• No credit check required
• Low interest rates

Cons:

• Not available to everyone
• Loans come with limits
• Potential tax consequences

You may be able to get emergency money if you have a 401(k). However, before you go this route, it’s important to understand what’s involved. First, you’ll be limited to the lesser of these two options:

• 50% of your vested account balance or $10,000, whichever is greater OR
• $50,000

The best thing about borrowing from your 401(k) is you’re repaying the money to yourself. You’ll only need to pay interest, and interest rates are typically lower with a 401(k) loan. However, you will need to pay a 10% penalty unless you qualify for a hardship withdrawal or you’re 59½ or older.

“Taking money from your retirement fund means that although you are avoiding paying interest to a credit card company, you also are taking away from your own wealth building,” Rebell cautions. “The money you take out is no longer compounding and growing, and in most cases, you will have to pay income tax on the money taken out. It’s also important to look at your specific plan details because some funds impose restrictions on contributions for some time, which can hurt your ability to build up that nest egg for even longer.”

4. Get a Home Equity Loan 

Pros:

• Low interest rates
• Consistent monthly payments
• Larger amounts available

Cons:

• Longer approval process
• Risk of losing your home
• Closing costs and fees

Do you have equity in your home? If so, it could be used as collateral for a loan. Home equity loans and home equity lines of credit (HELOCs) can be a low-interest alternative to credit card debt. With a home equity loan, you borrow the funds and pay them back, with interest. HELOCs, on the other hand, extend a loan amount that you can use as needed during a fixed period of time, known as the draw period.

But Kyle Enright, president of lending at Achieve, said borrowing on your home’s equity comes with some downsides. Primarily, you’ll be adding another monthly payment to your debt. You’ll also risk foreclosure if you miss payments.

“While some HELOCs are fixed rate, most are variable rate, meaning the rate — and therefore the monthly payment — can change throughout the term of the loan,” Enright warns. “Finally, qualification for HELOCs and home equity loans vary by lender, but can be challenging.” 

5. Borrow from Friends or Family 

Pros:

• Flexible terms
• Low or no interest
• No credit check required

Cons:

• Strained relationships
• Legal trickiness
• Tax implications for lender

Borrowing from loved ones seems like a great idea on the surface. You won’t endure a credit check, and your personal lender can even make a little income by charging interest. But this type of financial transaction can negatively impact relationships, so it’s important to consider the drawbacks first.

“Depending on the relationship with your family, this could actually be the best option available to you,” said Adem Selita, CEO and co-founder at The Debt Relief Company. “Family are a lot more likely to help you out in a bind and won’t require any forms or credit checks. However, make sure you do right by them. Write the terms down on paper, if possible. The last thing you want to do is to lose family members over money.”

While it’s possible to get emergency money  in a pinch, it’s important to earmark part of your budget for building an emergency fund. At first, make sure you have enough to cover car repairs or small medical bills. Then, over time, strive to cover at least a few months of essential expenses in case you’re unemployed. It takes time, but it will be well worth it when you’re earning interest on your funds rather than paying interest on money you borrowed.

Stephanie Faris is a professional finance writer with more than a decade of experience. Her work has been featured on a variety of top finance sites, including Money Under 30, GoBankingRates, Retirable, Sapling and Sifter.