5 tips for paying unexpected expenses

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Finding you have an unexpected expense to cover can feel like a heavy burden to carry. Whether you need to pay a hefty ticket, come into some large medical bills or you need to purchase a new vehicle unexpectedly, figuring out how to cover the expenses may raise your anxieties high.

Instead of entering freakout mode, take a deep breath and consider all your options as you make a financial plan for covering your emergency expenses. Taking inventory of your financial history and resources can help you move forward and figure out what’s next.

5 tips for paying unexpected expenses

1. Consider your options

Your first step should be taking inventory of the financial resources available to you. You don’t want to make a decision that impacts your financial health negatively far into the future.

Think about ways you could cover your unexpected expenses with the least impact on your financial health. If you have an emergency fund, use this well-planned resource now. If not, do you own a vehicle or an expensive item you could sell (even if it’s just temporary)? Maybe you have a friend or family member who would be willing to lend you the funds with no interest or very low interest.

Depending on your emergency expense, you may be able to work out a payment plan. Many medical bills have these options. Could you eliminate some regular expenses to make a smaller monthly payment?

If none of these options are available to you, think about applying for a personal loan.

What you need to know: Take an inventory of your finances and make a list of all possible options for paying your emergency expenses. Consider which option is best for your financial situation.

2. Think about taking out a loan

If you need to get money you don’t have quickly, your best option may be applying for a loan. If you need to get a loan, consider the following as you decide what type of loan you will get and where you will get it:

  • Credit unions often have the best rates. Generally, credit unions have lower interest rates for borrowing than commercial banks, says Liz Modesitt, regional manager for 13 retail locations of First Bank in the St. Louis area. However, consumers should keep in mind that membership is required before any loan can be established. “This can usually be satisfied by opening a checking or savings account with the credit unit,” she says. “Borrowers will want to consider whether the savings in interest outweighs the added requirements.”
  • Online lenders may be the quickest way to get funds. Al Goldstein, CEO of Avant, an online lending platform where consumers can apply for personal loans, says that the new wave of online lending platforms is using advanced underwriting methods to accurately factor in risk. Online lending platforms position themselves as best for consumers “who find themselves in an emergency situation,” Goldstein says. “Applications take minutes to complete and consumers can receive funds as soon as the next business day.”
  • Look into multiple options. There are many different types of loans, from emergency loans to secured personal loans. You can also find many different types of lenders. You may get a better rate from a bank where you have been a customer for years or you could find a great interest rate from an online lender. As much as you can, consider all your options as you choose a loan to cover your emergency expenses.

What you need to know: As you consider your loan options, know that credit unions can be a great way to secure a personal loan with lower interest rates, especially if you’re already a member of a credit union. Additionally, online lending platforms typically have fast application processes and are ideal for those who need a loan quickly.

3. Keep personal financial records organized and accessible

Whether you need to apply for a loan or not, make sure your finances are in order. However you pay for your emergency expenses you will want to have a detailed plan and keep record of all that you do.

When funds are needed in a hurry, Modesitt says that the best thing consumers can do to expedite the borrowing process is to be prepared.

“Have current pay stubs, W-2s or tax returns if self-employed on hand for income verification,” Modesitt says. “If these documents are not available at the time consumers apply, it can cause unnecessary delays.”

What you need to know: Being prepared and keeping your financial records organized in an accessible location will make the process of paying your emergency expense easier, whether you are applying for a personal loan or using some other payment method.

4. Check your prequalification offers

Prequalifying for a personal loan allows you to know if you’ll get approved for the loan before officially applying, which can save you time, money and hard credit inquiries. It’s also the best way to determine which lender will offer you the best rates and terms.

While many online lenders do offer prequalification, not every lender does. If you’re applying for a personal loan and want to save a couple of points on your credit score, compare offers using our prequalification form.

Look at the website for the lender to find a prequalification form. If you can’t find one, contact the lender over the phone or in-person to find out if they have one.

What you need to know: Prequalifying for a loan lets you know if you’ll get approved before you apply and is a great way to compare rates from multiple lenders.

5. Get a financial plan in place

While you can’t plan for every emergency, you can save up an emergency fund to ensure that you’ll have money in the bank if a larger expense does come your way.

But if you’re caught off guard by an unexpected expense and need to take out a loan, you can avoid future debt by creating a plan to pay off that loan. It’s always a good idea to consult with a trusted financial adviser to help you get a payment plan in place based on your financial situation. You can also access Bankrate’s loan calculator to determine the monthly payments on your loan.

What you need to know: Set aside dedicated emergency savings to prepare for unexpected expenses or establish a solid payoff plan by speaking with a financial adviser or using a loan calculator.

Next steps

If you need to cover an emergency expense, it can be tempting to look for the quickest way to pay them off. However, it’s best to consider all of your options and make a plan for paying off the loan that will have the least negative impact on your financial health. Take time to think about multiple ways to pay your expenses and pick the wisest option for you and your finances.

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Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Loans Editor