When faced with financial needs that the monthly budget can’t cover, using credit cards, tapping into a 401(k) balance, borrowing from family or friends, and accessing a home equity line of credit are all popular choices. There are consequences associated with each of these options for unexpected expenses, which is why financial experts recommend having a dedicated emergency fund.
If you don’t have an emergency fund in place to cover unexpected expenses, you aren’t alone. A recent Bankrate survey indicates that three out of five Americans had a major unexpected expense in the last 12 months. While 41% of them go to their savings account to cover those costs, the other 59% have to get creative to come up with the cash.
One option for how to deal with unexpected expenses may be taking out a personal loan. By taking out a loan you will have smaller, set installments to make, rather than having to foot the entire expense all at once. Even if you have savings, or an emergency fund, you may find it preferable to acquire a loan and spread the cost out over time, rather than use up the monies you’ve set aside.
Personal loans may offer relief when life happens
If you have kids, a pet, relatives that live far away, a home, or a car, you’ll probably face unexpected expenses in the future. Even “expected” expenses like birthdays, back to school costs, routine automobile maintenance, and holidays can put a tight budget into a tail spin.
A personal loan paid back over time has monthly payments that stay the same from month to month to fit into a budget. Also, the balance owed on a personal loan decreases with each payment. Finance companies usually report payments to one or more of the credit bureaus, so making on-time payments can help improve your credit, while also helping you deal with the unexpected expense.
The amount of money you can borrow through an installment loan or personal loan varies among lenders and approval depends on several factors. Borrowers can use the funds for any expense, such as covering the deductible for an emergency room visit or needing to fly across the country for a funeral.
Prepare for the unexpected
Building an emergency fund is a smart goal, but on a tight budget it can seem impossible. Even small things like a broken refrigerator or a flat tire can throw a family’s budget off course for months.
The best way to handle unexpected emergencies without financial consequences, is to have money set aside for life’s surprises. People who successfully save money do so over time.
It’s important to have goals that are achievable. Putting even $5 each week in a savings account improves psychological well-being. Having a budget that works and includes saving is crucial to future financial success. Having an emergency fund, even if it is small at first, offers a sense of security.
People who want to investigate the option of taking out a personal loan to cover unexpected expenses should speak with a qualified lender.