5 Ways to Pay When You Don’t Have an Emergency Fund

For most households, your credit card is the first resource for urgent needs you can’t cover with cash. Credit cards charge high interest rates, but they also offer instantaneous access to money, and that’s sometimes essential. If your car has just broken down a thousand miles from home or you’re stranded at a snowed-in airport, your credit card can feel like a real life raft. If you are having issues getting approved for the right credit card, you may be able to utilize one of the credit repair companies to improve your credit score to make it easier to qualify. 

Depending on the type of retirement account you have, this may actually be a wise alternative to a savings account. Some financial advisers even suggest putting your emergency money into a Roth IRA. Roth IRAs don’t impose any penalties or additional taxes on you when you remove your contributions in an emergency. The important thing to remember is you should not withdraw more than you contributed: In other words, you should not withdraw any of your actual earnings, because that will trigger penalties. Also, withdrawing money from a Roth IRA will take a few days, so it’s not useful for instantaneous crisis purposes.

If you have a 401(k) through your employer, you can ask about a “hardship distribution.” Some employers offer this option on their 401(k) plans, and it’s available to employees of any age. You may have to pay a percentage penalty for withdrawing the money, but you are not required to pay it back.

Borrowing against your home equity isn’t a good first line of defense against emergencies, but it’s not bad as a backup. You can open a HELOC (home equity line of credit) ahead of time, and pay an annual fee to keep it available to you in case of emergency. Interest rates on such loans are lower than credit card rates, and repayment periods are quite long.

If none of the above options will work, consider taking out a personal loan. Peer-to-peer lending allows you to apply for a loan online, and have access to a number of different options. Many times it makes the loan more accessible than if you were to go through a bank.

Crowdfunding through sites like GoFundMe, Indiegogo, YouCaring and others is an increasingly common resource for people facing extreme financial hardship. Donations to GoFundMe campaigns in 2014 amounted to $470 million, and paid for a wide array of needs. Most of your donations will come from your family and friends, so you have to widely circulate the link for your appeal — but that’s far more efficient than individually approaching every single member of your social network.

Considering these emergency fund options, you probably have more resilience than you realized if life throws financial landmines in your path.