by Kristin Wong
A new poll from Bloomberg suggests that almost half of Americans would have a hard time affording a $100 emergency, like a speeding ticket, medical bill, or other unexpected expense. Consider the idea that maybe this says less about the financial habits of Americans than it does our garbage economy.
Stop Blaming It All on Bad Money Habits
People are quick to judge when it comes to just about everything, but money seems to kill empathy faster than any other topic. Have massive student loan debt? You were stupid for going to college. Can’t afford your medical bills? Shouldn’t have bought an iPhone. Don’t have a job? Youmust be lazy.
None of that could possibly have anything to do with the fact that, for years now, wage growth has been stagnant and the job market has been unstable—when asked how they get paid, a quarter of those polled said, “it depends on the week.”
Bloomberg’s poll also found that 28% of respondents were worried about being able to pay for a mere $10 emergency. At this point, are we seriously still going to blame avocado toast?
That said, if you’re one of the many who struggles to afford a $100 emergency, you need an emergency fund more than anyone. The trouble is, people blame your bad financial habits, which is completely discouraging and likely only makes you want to give up altogether—don’t! Here’s some judgment-free info on what you can do when you’re strapped for cash and an emergency arises.
Let’s say you do get a speeding ticket and you have absolutely nothing saved. This is typically when people make desperate decisions that can push them into a downward spiral of debt, which typically leads to more desperate decisions and more debt.
Here are the worst options for financing an emergency:
- Payday loans: With sky-high fees and interest rates, payday loans are a notorious debt trap and probably the last place you want to turn, especially if your income varies on a weekly basis. One late payment and you’re screwed.
- Debt settlement: This isn’t always a debt trap, but it certainly can be. ClearPoint Credit Counseling Solutions explains that this is “a form of debt relief that is considered by financial experts to be extremely dangerous.” Debt settlement usually includes fees and rigid contracts—if you miss a payment, you could lose all of your money, and none of it will go toward your debt.
- High-interest credit cards: This is probably a slightly better, less predatory option than the above, but only slightly. Miss a payment and you’re on the hook for fees and interest. That said, some credit card companies are willing to work with you and might lower your monthly minimum so you can at least avoid a late payment fee.
And here are some better alternatives:
- Peer-to-peer lending: Sites like LendingClub and Prosper connect borrowers to regular people who loan their money so they can earn interest on it. As NerdWallet explains, your loan is funded by individual investors and the interest rate is determined by how much risk they’re willing to accept. The lender handles the paperwork and payments.
- Credit union loans: Many credit unions offer short-term loans specifically designed to help people going through a rough patch. The terms are usually a hell of a lot better than payday loans and they consider applicants with poor credit, too. “Credit union lending has traditionally been at the heart of the credit union movement,” Samantha Paxson, Chief Marketing and Experience Officer at CO-OP Financial Services, told us in an email. “Individual credit unions offer loans at lower rates than banks because they are member-owned—people helping people; interest rates are lower because that is the motive, not profit.”
- Small Dollar Loans: Through the FDIC’s Small Dollar Loan program, some banks offer “affordable” small loans to customers in a bind. NerdWallet explains more here, but generally, “affordable” means interest rates can’t be higher than 36%, which is still a lot, but it’s much less than the 200% interest rate (considering the fees they charge) you’ll get with a payday loan.
Seriously, if nothing else, just stay away from payday loans.
Why You Need an Emergency Fund
Ultimately, of course, you need an emergency fund. This is easier said than done, but consider this: an emergency fund gives you power and control over not only your finances but many other aspects of your life, too. (Here’s some recommended reading: A Story of a Fuck Off Fund.) When you have that money saved, you’re less likely to make rash and desperate choices. For once, you’ll have some breathing room in your life.
If you have to build an emergency fund from scratch, it’s best to start small. (Here’s how I did it. I’m not saying what worked for me will absolutely work for everyone else, but it may help.)
Most experts recommend saving between three to six months’ worth of living expenses, but if you’re struggling just to get by, this probably seems like a pipe dream. Instead, make that $100 your goal and look for ways to save a few bucks here and there, wherever you can find the cash. It might mean picking up overtime, selling some stuff, or looking for ways to save on each and every one of your monthly bills.
Ideally, you’ll keep your emergency fund in a separate savings account so you can’t touch it, and while some banks require a minimum balance to keep your account open, many of them don’t. A few of those include: Ally, Discover Bank, and Synchrony. Best of all, those banks don’t charge monthly fees.