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Guide to Covering Unexpected Expenses

8 Ways to Cover Unexpected Expenses
Jason Steele
Jason SteeleUpdated March 2, 2023
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When you suddenly have to pay for an expense you weren’t planning on, it can be nerve-racking. Unless you have enough money in savings to cover it, you’ll need to find financing fast. If you’re facing an unexpected expense and you need money right away to pay for it, there are a variety of options you can turn to. This guide will walk you through eight ways of dealing with an unexpected cost to help you find the right financing method for your situation.

What Is an Unexpected Expense?

An unexpected expense is any cost that you weren’t planning on. Unlike the regular expenses you pay each week or month — like rent, utilities, and groceries — unexpected expenses typically pop up suddenly. For instance, a pipe in your house might burst, and you need to deal with it immediately. Because you aren’t ready for this kind of unexpected cost, you may not have the cash on hand to cover it. 

What Are Examples of Unexpected Expenses?

There are all kinds of unexpected expenses you might encounter at some point. Some common ones include:
  • Car repairs 
  • Emergency vet visit for your cat or dog
  • Flooded basement
  • Medical bills that aren’t covered by insurance
  • Broken furnace
  • Roof leak

8 Ways to Cover Unexpected Expenses

If you’re confronted with an unexpected expense, here are some ways you could pay for it.

1. Get a Personal Loan

There are very few limits on what personal loans can be used for, so this option may make sense for you. How much your unexpected expense is will dictate how much of a personal loan you needWith a personal loan, you receive a lump sum of money you repay with interest over time. Interest rates for personal loans can range from single to double digits. The higher your credit score, the lower the interest rate you may qualify for.There are many different types of personal loans you can choose from, including a secured personal loan, which requires you to put up collateral to back it, or an unsecured personal loan that doesn’t need collateral. It’s wise to shop around with different lenders to find the best personal loan offers you can qualify for.

2. Take Out a Short-Term Loan

If your credit isn’t strong and you’re worried about getting personal loan approval, a short-term loan may be easier to qualify for. The requirements for these loans may be less strict. In fact, sometimes all you need is your ID and proof of income to be eligible, though it depends on the lender. Short-term loans typically provide fast funding. However, these loans tend to have high interest rates, and they often need to be repaid in one year or less. That means they could end up costing you more overall. If you choose to take out this type of loan, be sure you can repay it in the allotted time frame. 

3. Request a Salary Advance

Another option for dealing with an unexpected cost is to ask your employer for an advance on your salary. The way this process works is that you repay the money you’re advanced through deductions from your future paychecks within a specified time period. With a salary advance, you don’t have to have a certain credit score in order to qualify.  

4. Use a Credit Card

A credit card can be a quick and easy way to cover the cost of unexpected expenses. However, interest rates for credit cards can be quite high, and if you can’t pay off the balance quickly, you could become even further in debt. If you have good or excellent credit, you may be able to qualify for a credit card with a 0% introductory APR, which would give you time to pay off your unexpected expense without being charged interest. Just know that once the introductory period is over, the card’s regular interest rate will apply. 

5. Borrow Money From a Family Member or Friend

If you have a friend or relative who’s willing to lend you money, this could be a good solution for covering your unexpected expense. Be sure to put the terms of any family loan in writing, including how much your payments will be, when they’re due, and how long you have to repay what you borrowed. To avoid damaging your relationship, only borrow money from a friend or family member if you’re confident that you can repay them. 

6. Take Out a Home Equity Loan

With a home equity loan, you borrow against the equity you have in your home. Typically lenders allow you to borrow about 80% of your equity, and your home is the collateral for the loan. You repay the loan over time. However, you generally need to have at least 15% equity in your home to qualify. And if you fail to repay the loan, the lender could seize your house.

7. Borrow From Life Insurance

If you have permanent life insurance, you may be able to borrow from your policy’s cash value. It typically takes about 10 years before a policy has a high enough cash value to borrow from. Technically, you don’t have to repay a life insurance loan, but the loan will accumulate interest. If you die before the loan is repaid, any leftover loan balance will be deducted from your policy’s death benefit. Recommended: Life Insurance vs Savings Account

8. Borrow From Your Retirement Account

It’s possible to borrow from a retirement account like a 401(k) or Roth IRA, but think very carefully before choosing this option. Withdrawing money from your retirement account could make it difficult to save for your future. Plus, you’ll lose out on the interest you would have earned if the money was still in your account. In addition, there may be tax implications to consider. If you have a Roth IRA and you’ve contributed to the account for at least five years, you can withdraw money without paying tax or a penalty. But if you withdraw money from a traditional IRA or 401(k) and you’re under the age of 59 1/2, you’ll have to pay income tax on the amount you withdraw, plus a 10% penalty.Recommended: What Is a Thrift Savings Plan (TSP) Loan?

Tips for Planning for Unexpected Expenses

To help prevent unexpected expenses from putting you into debt, it’s best to plan ahead for them. These strategies can help you do that.
  • Build up an emergency fund. Set up a savings account for this fund, and start saving up enough to cover at least three months’ worth of expenses, if you can.
  • Reduce your living expenses. Set up a budget so you can see everything you spend money on. This will help you figure out where to cut back. For instance, instead of buying lunch out every day, you could bring it from home.
  • Ask your boss for a raise. Come prepared with reasons you deserve more money and highlight your accomplishments.
  • Get a side hustle. Consider working a side gig on evenings and weekends to earn a little extra. Perhaps you could do tutoring or dog sitting.
  • Sell unused household items. Do you have a toaster oven you barely use? Consider selling it to earn some cash. The same goes for furniture you don’t need.
Recommended: How to Budget on an Irregular Income

The Takeaway

Sudden unexpected expenses can be stressful, but there are a number of ways to cover them if you don’t have the cash on hand. For instance, you could put them on a credit card or ask your employer for a salary advance.Another option that may work for you is to apply for a personal loan. Lantern can help you compare personal loan options to find the right one for you. Just fill out one simple form and you’ll get offers from multiple lenders in our network. That way, you can zero in on what works for you — and get the money you need to take care of those unforeseen expenses.

Frequently Asked Questions

What is an unexpected expense?
What are some examples of unexpected expenses?
How do you deal with unexpected expenses?
Photo credit: iStock/AleksandarGeorgiev

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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