My Emergency Fund Can't Cover My Current Emergency! Now What?

A recent SecureSave survey found that 67% of Americans couldn't cover a $400 emergency expense with money from savings. And that means a lot of people are vulnerable to debt when unplanned bills strike.

A much better bet is to maintain an emergency fund with at least enough money to cover three months of essential expenses. But whether or not you've reached that point, you might run into a situation where you're faced with a large expense and your savings account balance just can't cover it.

Let's say your essential bills total $3,000 a month, and so you've managed to put together a $9,000 emergency fund. In theory, you're in pretty good shape. But what if your roof fails and you're looking at $11,000 to replace it? Suddenly, despite having built a nice emergency fund, you're in a bind.

In that situation, borrowing money to make up that shortfall may be your best, and frankly your only, bet. But it's important to borrow strategically to minimize your costs.

A more optimal way to borrow in an emergency

When your emergency fund falls short and you need access to added funds, your first inclination might be to reach for your credit cards and swipe away. After all, that line of credit is already there. You don't have to go out and apply for a loan -- and deal with a possible rejection. 

But while falling back on your credit cards to cover an emergency expense might seem like a good idea, the problem with doing so is that credit cards are notorious for charging high interest rates. So if you're forced to carry a balance for, say, a year or longer until it's paid off, you might end up spending quite a lot of money.

Plus, too high a credit card balance could damage your credit score, even if you're paying your minimums on time every month. And that could cause problems if you need to borrow a second time in a pinch.

That's why a better bet may be to either borrow against your home equity or take out a personal loan. If you own a home you have equity in, you could apply for a home equity loan. You may find that you're able to snag a reasonable borrowing rate on one of these loans (though keep in mind that borrowing costs are up across the board these days). 

If you don't own a home (in which case you wouldn't be looking at a roof repair, but rather, another large surprise bill), then a personal loan could be a good borrowing option. These loans let you borrow money for any purpose, and their interest rates tend to be competitive. If your credit score is in great shape, you might manage to eke out savings on your loan's interest rate. 

A tough situation

It can be incredibly frustrating to work hard to build an emergency fund only to have it fall short of what you need to cover a surprise expense. But sometimes, these things happen. If so, and you need to borrow money, think twice before reaching for your credit cards. That might seem like the easiest option, but it's one you might sorely regret after the fact.