Finding you have an unexpected expense to cover can feel like a heavy burden to carry. Whether you need to make costly home repairs, pay a hefty ticket, purchase a new vehicle unexpectedly or have recently come into some large medical bills, 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.

How to plan for unexpected expenses

Rather than let unexpected expenses throw you into a tailspin, you can prepare in advance to handle these types of inevitable events.

  • Establish an emergency fund: Each time you get paid, set aside a small portion of your income in an emergency fund. It’s important to get in the habit of doing this consistently. You can even set up automatic deposits to your savings account that are made each payday. As a general rule of thumb, your emergency fund should have three to six months of living expenses.
  • Don’t max out credit cards: To be clear, credit cards are not the ideal first choice for covering unexpected expenses. Especially if the card comes with a particularly high interest rate. However, it is important to have this option available for true emergencies — when you do not have any other way to get the cash needed for the unexpected expense. With this in mind, be careful not to max out your credit card, leaving you with no room for potential emergencies.
  • Establish a budget that includes money for unexpected expenses: Creating and following a budget is a good practice under any circumstances. Doing this can help reign in your impulse spending and allows you to manage money more effectively. A monthly or weekly budget can also be helpful in helping to shield you from the impacts of unexpected expenses, if you build money into your budget to cover such financial curveballs.
  • Increase your credit score: By working on your credit score ahead of time, you can make it easier to access personal loans or credit cards with competitive interest rates should you need to access credit or borrow money in an emergency.

5 tips for paying unexpected expenses

1. Ask about a payment plan

Depending on the type of expense, you may be able to work out a payment plan. If you’ll need to pay a service provider for the unexpected expenses, they may have programs available that allow you to pay what you owe in weekly, biweekly or monthly increments, with interest.

Many medical providers also offer payment plans to make the costs of healthcare affordable. You can break the amount you owe into small monthly payments that work for your budget. Even better, most medical debt can be repaid without the added interest or fees as long as you uphold your end of the bargain by making the agreed-upon monthly payments.

2. Put it on a credit card

You could get a 0 percent APR credit card if you have good or excellent credit. These cards come with a promotional interest-free period, typically between 6 and 21 months.

Ideally, you only want to spend as much as you can afford to pay off within the promotional period. Otherwise, you’ll pay interest on the remaining balance once the introductory period ends.

If you’re unable to qualify for a 0 percent APR credit card or would prefer to use another card you already have, be sure to devise a strategy to repay what you charge sooner than later. Consider making cuts to your spending plan to free up funds for extra credit card payments. That way, you won’t spend several months or years paying down the card, and you’ll minimize the amount of interest you pay to the credit card issuer.

3. Consider a personal loan

If you need to get money you don’t have quickly, your best option may be applying for a loan. Consider using the lender’s online prequalification tool (if applicable) for a personal to determine if you’re eligible for funding and view potential interest rates. Plus, you could save a couple of points on your credit score.

Also, look into multiple options before you choose a personal loan product. 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.

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.”

If you need money fast, online lenders may be the better option. 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.”

4. Consider a home equity loan

A home equity loan is another way to cover unexpected expenses as it lets you convert a portion of your home’s equity into cash. Still, it should only be used as a last resort since it acts as a second mortgage and you could lose your home if you fall behind on payments.

Most lenders let you borrow between 80 and 85 percent of the equity you’ve built up in your home. Your equity is the difference between what the home is worth and what you still owe on the mortgage and any other outstanding loans against the property.

To illustrate, assume your home is worth $425,000 and your mortgage balance is $295,000. In that case, you could be eligible for a home equity loan between $45,000 and $66,250.

The interest rate on home equity loans is typically competitive, but you’ll need good or excellent credit to qualify. Funds are disbursed in a lump sum and payable in equal monthly installments over a set period.

5. Get the money through other ways

If a payment plan isn’t an option or you’d prefer not to use debt to pay for unexpected expenses, explore other ways to come up with the funds you need. Here are some ideas to get you started:

  • Rework your budget in the short term to create more disposable income.
  • Sell items lying around your home that you longer need.
  • Cancel any extra services or activities for a brief period until you get back on your feet.
  • Put your creative talents to use and freelance to earn extra money.
  • Pick up odd jobs or overtime at work to boost your earnings.

What to do to prepare for unexpected expenses

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.

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.

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