It is great if you have the emergency funds set aside and the funds are enough to cover the unexpected expenses.

What if you don’t or your funds are not enough?

Typically, our immediate reaction is charge it on the credit card and worry about it later.

Don’t delay if you are unable to pay it off before the due date because the credit card interest charges can ruin your finances.

Try option number 1
Apply for a credit card with a 0% introductory rate

If the situation and time allow you to react, consider to apply for a credit card that comes with a 12-month 0% interest rate.  Some credit card companies offer 0% interest for up to 21 months.  Buy yourself some time to pay off the large expense and don’t pay any interest on it.

Option 2
Balance transfer

This option is not absolutely interest free.  Typically, the credit card companies charge 1% to 5% on the amount transferred.  Still, it’s at least 10% cheaper than regular credit card interest rates.

Option 3
Personal loan

This option is not so cheap, but it’s better than paying the regular APR on the credit cards.  Discover personal loan is probably the best option out there.  The rate starts at 6.99% if your credit is excellent and without fees.  Other options are Prosper, Lending Club, PenFed, and etc.  Their rates are higher and there are fees associated with the loans.

Option 4
401(k) loan

This is not cheap.  Because not only you have to pay for the interests, but also you are losing out the opportunity to make more money.   Let’s say the interest rate is 5% plus some minor fees to borrow your own money from the 401(k) account.  On an average, you are making 8% a year from your 401(k) account.  Your cost to borrow that money from the 401(k) is actually more than 5% because you also are losing the 8% earning.  The flip side of this is that you loan interest rate is low and it won’t affect your credit score.