How to handle unexpected major expenses: Surviving the financial storm

Getting hit with a big unexpected expense can be a shock to your system, and that's natural. No one relishes the idea of a bill they didn't see coming. However, rich, poor, or anywhere in between, everyone deals with the surprise of a major expense at some point. Everyone. The key is to put a plan into action. 

What are the first steps to take when facing a major expense?

Say your car breaks down, there's a death in your family several states away, or your partner needs emergency medical care. You're unsure how to get the money you need to make things right. 

Your first job is to take a deep breath and analyze your options. 

Take a fresh look at your accounts

It’s all too common to get hit with a major unexpected expense when you have no funds in reserve to handle it. But now’s the time to do an inventory, just in case you have access to any funds at all. For example, if you've been squirreling money away for other goals, consider using it now. You can repay your savings after you're back on the road. 

Check your home

Look around your house to decide if there's anything you'd be willing to sell. What about toys the kids no longer play with? Nice clothing you don’t wear? Furniture you rarely use? Selling the stuff you no longer need or have room for is a quick way to raise cash. Given the number of online neighborhood forums available, you could list items for sale this afternoon and have a few bucks in hand by tonight.

Selling things online can be a lot of work for a relatively small reward (compared to what those things cost, anyway). But if you’re willing to put in the effort to photograph and list your things, the payoff could be well worth your time.

Look for a workaround

Get creative when brainstorming ways to handle the major expense. For example:

• Car trouble: Could you take public transportation while you save up the money for repairs? Or, if a good friend or relative has a spare vehicle, ask about borrowing it until your car is roadworthy again. 

• Travel for a funeral: If you have any unused vacation time at work, ask your employer to buy it back. Or find out if anyone you know is headed to the area where you need to go and could give you a ride. 

• Medical needs: Go online to your county health department to find out about services that are available at low or no-cost. If a county hospital isn't an option, let your medical provider know that you can't pay your portion of the medical bill right away and ask about grants. Medical facilities deal with the issue every day and are likely to provide payment options.

Ask for help

The people close to you might be willing and able to help you get through the emergency. Or they might be willing to take over certain expenses to make it easier for you to handle the crisis. If you borrow money from friends or family, be sure to write up the details of how you’ll pay them back. 

When unexpected expenses lead to debt: How to handle it

If your only options are to take out a loan or use a credit card for an unexpected expense, don't stress. While you may not feel borrowing money is ideal, proper planning could make it manageable. 

Work your monthly budget. 

Jot down your monthly income and how much you pay in bills. This simple equation will help you figure out how much you can afford for debt payments. 

Fold the cost of the emergency into your existing expenses. 

If you have other debts, look into a personal loan for debt consolidation. If you’re a homeowner with sufficient home equity, you could also look into consolidating debt with a home equity loan. Using the same loan, borrow the money you need to cover the cost of the unexpected expense. Consolidating multiple debts is a great way to reduce the number of payments you have to make. Your total monthly payment might go down, too. 

How a consolidation loan works

Imagine your monthly bills include the following:

While you've been able to cover your monthly payments so far, you can't imagine taking on another debt.

You expect the unexpected expense to cost around $2,000. 

Let's say you decide to consolidate the four debts listed above and borrow an extra $2,000 to pay your respects. Consolidating debt involves taking out a single loan—often in the form of a personal loan—and using it to pay off existing debt. It can be a smart move if you end up with a lower interest rate and can reduce the number of payments you have to make each month. 

You'll need to borrow $16,000 for existing debt, $2,000 for the out-of-state trip, and enough to cover the loan origination fee. Here's how it might look if you took out a four-year consolidation loan with an APR of 16% and a 6% loan origination fee.

This example is for illustration purposes only. Individual results vary.

In our example, instead of paying your debts off in 94 months (seven and a half years), you’d pay them off in 60 months (five years). And rather than pay $18,789 in interest, you’d pay $8,759.  

Find more money

A consolidation loan isn’t for everyone. There are other ways to bring in money that you could use to pay down your debt. A few ideas:

• Ask for a raise

• Ask for more hours

• Get another job where you can work on your days off

• Drive for a ride share app

• Become an online tutor

• Rent out a room in your home

• Rent out your garage

Where to find financial help after unexpected expenses

Fortunately, there are places you can turn to when faced with financial hardship. Some of these programs could help you get through the situation and maybe even avoid a big unexpected expense in the future.

Hardship financial aid programs

Here's a sample of some of the financial aid programs available:

• Low Income Home Energy Assistance Program (LIHEAP): Helps low-income households cover the cost of energy. This could be especially helpful if you live in a place that’s very cold in the winter and your heating costs are high.

• Medicaid: A federally-funded program that provides low-income individuals and families with medical assistance. If you qualify, the healthcare you need might be covered, without a big bill to you.

• Temporary Assistance for Needy Families (TANF): This is a federally-funded program that provides time-limited cash assistance. 

• WIC: This is a federal nutrition program to help low-income pregnant women, new mothers and their infants, and young children.

• BenefitsCheckUp: A service that helps seniors find benefit programs for income assistance, housing, medication, and food.

• Emergency Rental Assistance Program (ERA): This program helps households unable to pay rent or utilities.

For more information about assistance programs in your area, go online and type in "hardship financial assistance programs for (your location)."

Moving forward with financial stability

Challenges often bring ‌‌valuable lessons. Once you've gotten through this unexpected major expense (and you will), consider making some small changes that could have big results in your everyday life.

Make it a point to put a little money away each month into an emergency fund. You don't have to break the bank. But developing this habit is what’s going to help you deal with the next expense. Even if you feel broke, add $5 or $10 to your savings every month. 

When you can, add more. If you get a bonus at work, if someone dies and leaves you a cash inheritance, if you get a tax refund from Uncle Sam—sock it away. If you get a raise, keep living on the same amount you got on your old paychecks, and put the extra in the bank. Keep selling your stuff and moonlighting when you need to.

The only way to have money for unexpected expenses is to set it aside it before those events happen.

No one ever complains about having too much money. Saving isn’t a punishment. It’s a lifestyle habit to embrace. The stress of getting hit with an expense you can’t afford is bigger than the inconvenience of living on less when you want to save more.

What's next

Fortunately, once you get through your current situation, you'll have the insight to know how to plan for the next financial surprise. Here are a few ideas to get you started:

• Create a list of available resources, including places you can turn to for help. 

• Ask someone you trust to serve as your accountability partner. 

• Tuck a little money away each month into an emergency fund. 

• If you're having trouble staying on track, don't be shy about reaching out to a credit counseling service.