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Unexpected Expense and No Money? Here's How to Handle It.

Most 22 to 37-year-olds have less than $5,000 in their savings account.

by Gretchen Brown
April 8, 2020 | Money

One day after my office told us to work from home due to COVID-19, my couch broke.

Broke broke. As in, un-sittable. As in, I was now down to my kitchen table as my only non-bed seating area. 

Not an ideal situation to be in, given the pandemic that would likely — I thought at the time — keep me home for at least a month.

I knew I would need to find a new one. And I knew that I really, really, didn’t budget for this.

So where is the money supposed to come from?

Lots of people have been in this same situation. While most folks ages 22 to 37 have a savings account, 58 percent have a balance under $5,000, according to a survey from Business Insider and Morning Consult.

That doesn’t leave a lot of room for unexpected expenses.

If your savings account can cover the expense, that’s always the best place to start, said Megan Kiesel, a certified financial planner.

“Borrow the money from yourself, interest free, and then rebuild your savings over time,” she said.

If you’re just starting to build up your savings, it can be nerve wracking to use some of that money. Remember: that’s what it’s there for.

But what if your savings account doesn’t cover the expense? What then?

[ICYMI: How to Start Saving a Little When You Don't Earn a Lot]

Considering your options

woman with piggy bank saving money. REWIRE PBS money unexpected expense
When it comes to less urgent purchases, if you don’t have the money for something, you should put off purchasing the item until you do.  |  Credit: Adobe

Your options are different depending on the type of expense you’re trying to pay for. In many cases, you might be able to defer your payments, interest free — at least, until you can increase your money flow. 

For instance, if you’ve got a big medical bill that you can’t pay off, you can call the hospital or healthcare provider to see if they’d be willing to let you defer your payments due to financial hardship.

If you’re unemployed, you could also defer other monthly payments so you have extra money to pay the bill.

“You should also defer your mortgage payment and auto loan payment for a few months,” said money-saving expert Andrea Woroch

“This will give you extra wiggle room with the cash you get from the unemployment/stimulus check and from what you have sitting in savings to pay for a necessary, but unexpected or emergency expense without additional stress.”

Due to COVID-19, many credit card companies are also willing to defer payments depending on your individual financial hardship. 

Talk to your loan or credit card servicers to see if this is an option for you.

[Read: Is Credit Card Debt Consolidation a Good Idea?]

Credit card or financing?

In many cases, such as a car or home repair, you don’t have the luxury of delaying your purchase until you’ve saved more money. The expense is more urgent.

In those cases, you should weigh the cheapest way to pay for it and pay off any debt you accrue as fast as possible.

“If you need to use credit, it’s very important that you seek out a low interest rate and that you make a plan to pay it off,” Kiesel said.

The plan is what’s important here. If you don’t have a realistic plan for paying down the debt, it’s just gonna keep growing.

In my case, I noticed that many furniture stores had financing plans, where the store puts you on a payment plan over a scheduled length of time.

Many of these are enticing, and advertise zero interest. But Kiesel cautions that if you don’t pay off the debt over the scheduled time — say 12 months — the store will add on the interest, which can be astronomical.

Similarly, many credit cards also offer introductory periods with zero percent APR. But once again, if you don’t pay off the debt within the introductory period, you’ll be charged.

“You can also find cards offering zero percent on balance transfers, so you can transfer the balance for your current card to the new card,” Woroch said.

“And reduce payments so you can keep more cash in your pocket to pay for essentials without worrying about the interest building up.”

If you do choose a new credit card, make sure to look at the fine print.

Put off the purchase if you can

When it comes to less urgent purchases, if you don’t have the money for something, you should put off purchasing the item until you do.

That’s because if you’re having trouble saving to pay out of pocket now, you likely won’t be able to pay off the debt later. Not without a drastic change in income or spending.

“Right now especially, I think delaying is a very good tactic and buying optional items on credit is a very bad one,” Kiesel said. 

“No one knows the length or depth of this downturn. Even if your job feels stable now, we don’t know what’s coming.”

You might be able to pay for the expense by making some extra money through a side gig. 

Due to COVID-19, your options are more limited than normal, but there are plenty of gigs you can do virtually, such as online tutoring or freelancing.

This month, the U.S. government will send stimulus checks of $1,200 to most Americans who made less than $75,000 last year. If that’s you, you might be able to use that extra money to pay, if you don’t need it for basic living expenses.

Many Americans are also awaiting their tax returns. I used mine to pay for my new (budget-friendly) couch.

If you have money coming in, focus on building up that savings account so you won’t be in this spot next time around. Kiesel recommends setting up an auto transfer of 10 to 15 percent of your take-home pay to your savings account. 

Then you won’t have to take on debt the next time a big emergency hits.

“I understand how difficult this advice is, I truly do,” Kiesel said.

“But there will always be unexpected expenses, and if you can’t set aside money for them, then you aren’t really living within your means.”

Gretchen Brown
Gretchen Brown is an editor for Rewire. She’s into public media, music and really good coffee. Email her at [email protected], or follow her on Twitter @gretch_brown.
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