How To Tackle A Financial Emergency Without An Emergency Fund

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An AARP survey conducted in 2019 has revealed that about 50% of adults aged over 30 had faced a financial emergency at least once in the past 1 year. The median cost of the financial challenge faced by them is around $3000 to $4000. People with a household income of more than $75,000 also faced financial challenges.  

So, it’s easy to understand the importance of having an emergency fund. The hard part is saving 3-6 months’ worth of whatever your lifestyle costs. Until then, here is how you can survive a financial emergency when you don’t yet have an emergency fund.

Charge your credit card

You can charge your card to pay for your present financial emergency. However, try to pay back the amount within the current billing cycle. Otherwise, you may be left with another financial emergency to tackle.

A balance transfer method is one of the most efficient ways to eliminate credit card debt.

You can apply for a zero percent or low-interest balance transfer credit card.  However, please do additional research before using this strategy.

Also, you can use a credit card that offers you rewards that you can use in the future.

Remember, when you charge credit cards, try to pay it off as soon as possible. Getting in the habit of budgeting and saving as much as you can help. Additionally, these habits can not only help you get out of debt and prepare you for future emergencies but they can also help you achieve financial freedom.  

Ask a friend or a relative for a loan

Instead of approaching a financial organization, you can ask your friends or relatives for help. Explain your situation and urgency, they may be more than willing to loan you some money. 

When a friend or a relative agrees to lend you an amount, make sure you stick to your agreement when you plan on paying them back (i.e. installments or lump sum and payoff period) and how you will be paying them (i.e. Cash, check, or electronic). To sweeten the deal, you may suggest paying interest on the loan amount at a slightly higher percentage than what your friend or relative would have got compared to investing elsewhere.

After all, you don’t want to take your relationships for granted.

Arrange a garage sale of items you don’t need

If you look around your home, you’ll find that there are a few items in your home that you haven’t used for a long time. Collect these items, arrange a garage sale or sell them online on places like the Facebook marketplace or craigslist. Just be sure to be safe and take precautions when meeting people for these transactions.

Depending on what you sell, you may have a decent amount that you can use to tackle your financial emergency.

It will also help others in your community to buy things at a comparatively low price.

By arranging a garage sale, you can also make your home clutter-free.

In this context, I would like to mention that you can rent a portion of your garage. You can also rent a portion of your home if it doesn’t hamper your privacy. Although setting up rental agreements would take longer than selling things around your home, it is a great way to turn your assets into cash flow machines.

Approach a bank for a loan

Whenever you need money, perhaps the first thing that comes to your mind is a personal loan. Just be sure to explore the options above first. 

If your credit score is good, you might be able to take out a personal loan under suitable terms and conditions. Be sure to shop around and to read all the terms and conditions. Most importantly, make sure you can repay the loan within the loan period.

If you have a good reputation with a bank, you’ll be able to obtain the loan pretty fast.

Whatever you do, it is advisable not to take out a payday loan as their interest rates can be up to 400%!

You can leverage your home equity 

If you own a home, you can tap into your home equity to take out a home equity loan. Since you’re pledging your home, make sure you pay back the loan on time. Otherwise, you may lose your home.

As opposed to a home equity loan, you can take out a HELOC (Home Equity Line Of Credit) and use it like your credit card. There will be a credit limit and associated interest. Like credit cards, HELOCs are a form of revolving credit. You can take out the desired amount, pay it back and take it out again. Just don’t go too crazy, after all, you are risking your home.

There are pros and cons to home equity loans and HELOCs, be sure to do your research before you dive into either.

Additionally, the interest rates on secured debt such as home equity loans are typically lower than unsecured debt such as personal loans. It is because you’re taking out the loan by keeping your house as collateral. If you can’t repay the loan, the lender can sell your house to recover the loan amount.

Therefore, it is usually better to tackle your emergencies without having to tap into home equity.

What will you do?

While there are ways to handle financial emergencies without an emergency fund, they are ultimately backups. You will feel much more secure when you can handle a $1000 unexpected expense. 

If you don’t have an emergency fund yet, start building one. Initially, try to save about 5% of your paycheck. Then try to save at least 10% of your monthly paycheck. Slowly, you’ll be able to build a good emergency fund. Make sure you don’t use the funds for any other purpose than emergencies. After the emergency, be sure to replenish it.

Doing so, you can remain stress-free knowing that you can handle most financial emergencies.

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