Paying for Emergencies: What’s in Your Toolkit?

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eHow Money Blog

If you’ve ever owned a pet, you know a trip to the veterinarian can be expensive. And since three Bichon Frises are part of our family, the annual well visits, vaccinations and flea prevention that are all part of dog ownership are expenses we save and plan for.

But when one of our dogs recently required an emergency trip to the veterinarian, and subsequent treats and prescriptions to treat a pinched nerve in his neck (ouch!) I can’t tell you how happy I was to have a Financial Emergency Toolkit.

In our house, our dogs are considered members of the family. I admit it, they often get more space on the bed than humans do! And because we love our pets, as so many pet parents do, the thought of having to choose between providing adequate medical care or going into debt or not paying a bill like the mortgage or a car payment seems unthinkable.

That’s where a financial emergency toolkit comes in.

What is a Financial Emergency Kit?

I’m fortunate that we haven’t had many financial emergencies lately. But it’s nice to know that should one arise, I have options to pay for the crisis without sending my credit score down the tubes or taking a loan from our 401(k).

Here’s a look at the tools in my kit:

Living expenses. We keep six months’ worth of expenses in an account we ‘forget’ about. WE act like it’s not there so we’re not tempted to dip into it for impulses like a new TV or a weekend getaway.

Thankfully, my husband and I are both gainfully employed. But should employment disaster strike, having this account means we can pay our bills on-time without suffering late payment fees or our credit scores taking a beating.

“If you don’t have an emergency fund, start one today even if you can only put $20 in it,” says Beverly Harzog, a credit expert in Atlanta and author of “Confessions of a Credit Junkie.”

A low-interest credit card. “I have a card that I’ve had for 10 years that has a fixed 9.99 percent APR,” says Harzog. “I might use this card if I need to spread the cost of an emergency out over a few months.”

Two rewards credit cards. My rewards of choice are cash back and airline miles. But I’ll only use them if I can pay the bill in full when the statement shows up. “I’ve paid for the repair to my ceiling and roof after a leak with one of my rewards cards,” says Harzog.

Choosing your tool

What I use to pay for the emergency, depends on the size of the bill.

When my dog was sick, I opted for the low-interest card since I knew we’d pay it off as soon as the statement arrived.

“I might do a combination as I don’t like to take too much out of my emergency fund,” adds Harzog. “I’ve used one of my rewards cards and then pay the bill out of my emergency fund the following month. That way I’ll get the miles or cash back and postpone the expense a few weeks.”

Regardless of what you choose to use, there’s comfort knowing you have options.

What if the bill is humongous?

If the amount of the emergency is staggering, Harzog suggests using a low-interest card for a month or two rather than drain your emergency fund, even though that means shelling out a bit for interest. “In an emergency, sometimes it’s better to pay a little interest expense instead of leaving yourself financially vulnerable by depleting your living expenses account.”

So how about you? Are you prepared for an emergency?

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