Takeaways
- Over 50% of Americans don't have an emergency fund to pay unplanned bills.
- Emergency funds are savings accounts with cash of at least $1,000 to $3,000.
- Unexpected bills include car repairs, roof leaks, computer issues, etc.
- Earning more income or accessing lines of equity can reduce borrowing costs.
- Credit products like credit cards, personal loans, and payday loans give you access to cash.
Unexpected expenses are part of everyday life. Whether your car breaks down, the AC unit won't start, or your computer glitches out, you must figure out how to pay these sudden bills.
According to a recent survey, over 42% of Americans don't have an emergency fund.[1] While financial professionals advocate having an emergency fund to pay for these expenses, there are other ways to handle them.
What Is an Emergency Fund?
An emergency fund is a cash savings account with funds to pay unexpected bills or expenses. Financial experts recommend stashing away at least $1,000 to $3,000 in your emergency fund.
You can harness the power of compound interest and keep your funds in a high-yield savings account or checking account to earn interest income. Storing your funds in interest-bearing accounts will help grow your funds without having to save more of your hard-earned income.
Many financial advisors advocate automating your finances and saving at least $100 to $300 per month into your emergency or slush fund. This is especially attractive because you can adopt a set-it-and-forget-it approach and watch your funds grow over time.
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7 Ways to Pay for Unexpected Expenses
Here are seven ways to pay for unexpected expenses if you don’t have an emergency fund saved yet:
1. Earn Cash Quickly
Making more money is one of the top financial goals of most young professionals. In today's shared economy, you have access to tons of short-term avenues to generate cash quickly. Check out these 12 Ideas for Making Cash in Less Than One Hour.
You can use your newfound income to pay for an unexpected expense on the spot or within a few days. Before starting any new job, you should have a checking or savings account to deposit your funds. Read more about how to open a checking account.
- Pros: Quick way to get cash, extra source of income, don’t take out debt
- Cons: Very high APR, eats into your next paycheck, creates debt management
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2. Use a Credit Card
One of the most common methods of making everyday purchases is with a credit card. Credit cards are payment cards that let you spend money up to a specific credit limit. If you find yourself in a pinch with no cash, you can use your credit card to pay for bills and expenses.
The best credit cards even let you earn cash back, accrue rewards program points, and offer purchase protection plans. After using your credit card for an emergency payment, you must pay off your credit card statement balance. By paying your credit card balances on time, you can ensure a high credit score.
- Pros: Fast access to credit, ability to repay over time, rewards points
- Cons: High interest rates, new credit card applications can impact credit scores, debt management
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3. Take Out a Personal Loan
One of the fastest ways to access the cash you need is to take out a personal loan. A personal loan is a short-term loan offered by banks, credit unions, or other financial institutions that allows you to pay for a wide range of expenses.
The best personal loans give you almost immediate access to cash, deposit these funds in your account within days, and let you pay back your loan at your own pace. You can use personal loans for a wide variety of expenses, including paying for vacations, renovations, or medical bills.
- Pros: Quick access to credit, quick approval process, ability to repay over time
- Cons: Elevated interest rates, new loan applications can impact credit scores, debt management
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4. Consider a 401(k) Loan
You might already have a “de facto” emergency fund and not even know it. If you have been saving for retirement with a 401(k) plan, your retirement funds can act as a financial backstop because you can lend yourself money with a 401(k) loan.
A 401(k) loan lets you withdraw money from your retirement investment account and pay it back over time.
You can withdraw up to the lesser of [2]:
- 50% of your vested balance up to $10,000 or;
- $50,000
However, if your vested account balance is less than $10,000, you may be able to borrow up to $10,000, even if this is more than 50% of your balance.
- Pros: Access to your savings, low interest rates, fast approval process
- Cons: Impacts retirement growth, capped loan limit, potential penalties and tax issues
5. Payday Loan
Payday loans are short-term loans that give you an upfront deposit and are intended to cover expenses you can’t pay for with cash until your next paycheck. They typically range from $100 to $500.
You can apply for a payday loan and be approved in minutes. All lenders need is your basic personal information, income data, and bank account information. Once you are approved, your loan amount will be deposited into your checking account.
- Pros: Quick approval process, small amounts of cash, linked to bank account
- Cons: Super high interest rates, lag eats into next paycheck, creates debt management
6. Sell Investments
You may be low on cash because you have been starting to invest all of your discretionary income. If you have been piling up stocks, bonds, and real estate investments in your online brokerage account, you could already have access to the cash you need for an unexpected expense.
Instead of taking out debt to pay unplanned bills, you can liquidate investments and use the cash proceeds to pay for the expenses. Selling stocks at a loss can even help with tax-loss harvesting and boost your tax refund.
- Pros: Access to your savings, no interest rates, simple selling process
- Cons: Impacts investment growth, creates capital gains or losses, impacts taxes
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7. Tap Your Home Equity Loan
Do you have equity in your home? Tapping into your home equity with a home equity loan could be a fast way to access the cash you need for unexpected expenses.
A home equity loan is a loan from a bank, credit union, or lender that uses your home’s equity as collateral for the loan. You probably have equity in your home if you paid a large down payment, made on-time mortgage payments, or the market value of your house has increased quickly.
- Pros: Predictable interest rates, long-term payment options, uses source of equity
- Cons: Variability of home equity, fees and closing costs, increased debt-to-income ratio
Smart Summary
There are plenty of ways to access cash if you get into a financial pickle. To avoid this, you should allocate part of your monthly savings to creating an emergency fund. You can stash your cash in a high-interest bank account and let it start growing immediately. After your emergency fund is topped off, you can move on to creating an even larger buffer between you and financial issues with a slush fund.
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(1) U.S. News and World Reports. Survey: 42% of Americans Don’t Have an Emergency Fund. Last Accessed February 19, 2025.
(2) Internal Revenue Service. Retirement topics – Plan loans. Last Accessed February 19, 2025.
