4 Ways to Cover an Emergency Expense Without Paying Interest
by Elizabeth Aldrich | Updated July 25, 2021 - First published on March 14, 2021
From payment plans and buy now, pay later apps to credit card offers, these are some of the best options.
If you're facing an unexpected expense you don't know how to cover, you're not alone. In fact, in 2020, the probability that any given American could cover a $2,000 emergency expense reached new lows.
While it's possible to resort to taking out a loan or charging a credit card, this can mean years of debt and hundreds -- if not thousands -- of dollars in interest charges. Even if you're able to qualify for a low interest personal loan, avoiding interest altogether is always preferable.
Luckily, there are ways to come up with the cash you need and avoid interest. Here's how.
1. An emergency fund
One of the best ways to cover an emergency expense is by withdrawing money from a dedicated emergency fund. This fund should be three to six months' worth of living expenses socked away in a savings account.
If you have money stashed in savings, you'll probably want to rely on that before borrowing money. While it is sometimes better to finance than pay in cash, in most cases, avoiding debt is ideal. If you don't have any money in savings, the following options might still help you out.
2. A 0% intro APR credit card
The best 0% intro APR credit cards come with a promotional period of 12 to 20 months, during which you aren't charged interest on any new purchases. This means that as long as you pay off your full balance before that promotional period ends, you can finance your emergency expense without spending a dime on interest. Most of these credit cards do require you to have good credit to get approved.
There is a catch, though: Once the promotional period ends, the card's interest rate shoots up to the regular APR -- which is very high for most of these credit cards. If you still have a remaining balance at that time, you'll start receiving hefty interest charges. What's more, if you miss a minimum monthly payment during the introductory promotional period, you can lose your 0% APR offer.
3. A balance transfer credit card
Similar to 0% intro APR credit cards, the best balance transfer credit cards give you a 0% APR for an introductory period of time -- but on balance transfers rather than new purchases. This means you can charge an emergency expense to your current credit card and then transfer it to one of these cards and pay it off interest-free until the promotional period ends, typically in 12 to 20 months.
There are several caveats to be aware of with these cards. First, you must qualify for a balance transfer card with a high enough credit limit to cover your emergency expense. For that reason, make sure to apply for the balance transfer card of your choice before moving forward with this plan. Most balance transfer credit cards also charge a balance transfer fee of 3% of the total amount transferred, so while this is still often cheaper than paying interest, it isn't free.
Finally, as with 0% intro APR cards, you want to make sure you can pay off your entire balance before the promotional period ends. These credit cards also come with high regular interest rates.
4. A payment plan
Depending on the expense you're facing, you might have the option of setting up a payment plan. For example, many healthcare providers -- such as hospitals and dental offices -- offer payment plans for major procedures. Sometimes these plans don't charge interest and sometimes they do, but even when they do charge interest, they're often still the most affordable option.
When it comes to making purchases with major retailers, many now offer the option to pay for your purchases through a buy now, pay later (BNPL) app. These apps let you pay off your purchase in weekly, bimonthly, or monthly installments and often feature an interest-free period. Keep in mind that there are some drawbacks to using BNPL apps, such as sky-high ongoing interest rates and severe penalties for missed payments.
While no one wants to be stuck with an expense they can't cover, it's important to remember that you do have options. Take the time to research what they are so you can make the best choice for your financial situation.
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