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Without an Emergency Fund, How Can You Cover Unexpected Costs?

Around one-quarter of Americans have no emergency fund at all, which makes it tough to respond to unexpected expenses when they inevitably arise. Whether it's a doctor's visit or a car repair bill or a home repair, things come up in everyone's lives. If you don't have the cash to pay for these unexpected costs, you could find yourself in dire straits.

Saving up at least a small emergency fund is key to avoiding financial disaster, and ideally you should have three to six months of living expenses saved. But what if you don't? What are your options for surprise expenses when you don't have any cash in the bank? Here are seven suggestions.

Image source: Getty Images.

1. Rework your budget and cover the costs with cash

Ideally, the best way to pay for an unexpected emergency is to find a way to free up cash so you don't have to borrow.

Obviously, there are certain bills you always have to pay, but you could slash discretionary spending to the bone until you've got the necessary funds to cover your unexpected expense. Skip dining out, eat out of your pantry instead of getting groceries, catch public transportation or get a ride to work to save on gas, and do absolutely everything you can to cut other costs to $0. If you can seriously cut back on all nonessential spending, you may be able to find the cash to cover your unexpected expense.

2. Sell unnecessary items to free up the money

If you have items lying around the house you aren't using, try listing them for sale. If you can get someone to buy your stuff, you can cover your bill and declutter at the same time. That video game system may seem important, but if you haven't actually had the time to play it in weeks and aren't sure when you'll do so again, you may be far better off just selling it and using the proceeds to cover your surprise expense.

3. Pick up a side gig that pays quickly

Paychecks don't come right away when you find work, so getting a second traditional job may not give you access to cash in time to deal with your emergency expense. But lots of side gigs pay in cash right away.

Put up an ad offering lawn mowing or landscaping services for cash payments, for example, or apply for babysitting gigs for which you get paid at the end of the night. Pocket the cash you receive from these side gigs and use the funds to cover your surprise expense. Just be sure you keep track of what you earn and know the tax rules for reporting cash income so you don't run afoul of IRS regulations.

4. Borrow from friends or family

If you have loved ones with access to spare cash, you can try to borrow from them to cover your unexpected expense. Just be sure you're clear on the terms of the loan -- will you pay interest, for example, and how long will you have to pay back the debt? Agree up front on a payment schedule, make sure it's one you can stick to, and put everything in writing so both you and your lender are on the same page.

5. Use a credit card

Using a credit card is a really expensive and dangerous way to deal with an emergency situation, but sometimes you have no choice.

Charging your emergency expenses on a credit card could leave you paying interest on the debt if you don't pay it off in full when the statement comes. Credit card interest can be very high, making it difficult to pay what you owe. If you pay only the minimum, you could end up stuck with the debt for years and significantly increasing the cost of the emergency.

If you must use a credit card to cover unexpected costs, consider applying for a card with a 0% promotional APR. This should give you several months to pay back the debt without owing interest on your purchases. Make a plan to pay back what you owe ASAP and cut spending on other things until your debt has been paid down.

6. Consider a payday alternative loan

You should not ever take out a payday loan to cover emergency expenses, as the effective APR on payday loans is often around 400% or higher. You don't want to incur huge fees to borrow for a short-term emergency, as this can leave you caught in an inescapable debt trap.

But if you are a member of a credit union, you may be able to take out a payday alternative loan instead. These are small loans with capped fees offered by credit unions as an alternative for people who need to quickly borrow small sums. Check with your credit union to see if you're eligible and what the terms are.

7. Look into personal loans

Sometimes, a bigger emergency will mean you need to access more cash. If you need to borrow around $1,000 or more and you won't be able to pay off the amount right away, a personal loan could be a good option. Personal loans tend to have interest rates below what credit cards charge, and the repayment schedule is fixed, so there's no question how much the loan will cost in total or when you'll become debt free. Some personal loan lenders also offer timely funding, as quick as the next day after you've applied, so you can access the borrowed funds speedily in case of an emergency.

Pick the most affordable and effective way to cover unexpected costs

Many of the options on this list -- such as borrowing from friends and family or selling unnecessary items -- aren't available to everyone. The key is to explore these different solutions to see what options are open to you and will cost you the least. You don't want to end up deeply in debt with a creditor charging a high interest rate, so take a little bit of time -- even in an emergency -- to make sure you've explored cost-effective avenues for coming up with the cash.

And remember, another emergency is going to happen eventually, so once you get past your current crisis, you should prioritize saving for emergencies so you won't find yourself in this situation again.

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