At some point, most of us are likely to encounter an unexpected event in our lives - loss of job, unplanned illness, or a flooded basement - all of which will likely require you to shell out cash you weren't planning to spend.
Unfortunately that unexpected expense could be crippling for many Americans; one study found that 40% of Americans can't cover a $400 emergency expense.
So when the unexpected strikes, what are some options to help pay for it?
In general, if you can't pay off an accrued balance at the end of the month, then credit cards probably shouldn't be used to finance large, planned expenses - like purchasing a car or a remodel. This is because the interest rate on credit cards is generally much higher than a loan or line of credit from a bank. However, if you need money in a pinch, then a credit card can be a good option. The approval process is generally faster than a traditional loan and you'll have nearly 24/7 access to the borrowed funds. Just make sure you take a hard look at interest rates and fees before putting a significant balance on it.
Leveraging your home's equity
If you're a homeowner and have some equity invested, then a home equity line of credit, or HELOC, could be a good option. A HELOC is essentially a loan using your existing home as collateral. HELOC funds may or may not be used on home-related items and fees and interest may be significantly less than credit cards. Ask your neighborhood loan officer how your home might be able to help you through an unexpected, or emergency, situation.
Borrowing against a 401k
Certain situations allow 401k owners to borrow against their retirement savings, but - as with all these options - you'll want to proceed with caution. If you do borrow against your 401k, according to Forbes, you'll need to pay it back with pre tax dollars and you'll be losing out on earning interest while the funds are lent to you. Forbes has an article that provides some more information about this type of financing.
We're here to help you save
Don’t wait until an emergency hits before you start saving for one. Contact your neighborhood branch to learn about simple, straightforward, financial management tools or our Savings account*, and how they can help you put more away for the unexpected.
*Account requires $25 to open and costs $4 per month if the balance falls below $200. Click here to find out more.
All loans subject to credit and underwriting approval.