BUSINESS

8 Unexpected Life Expenses And A Smart Way To Finance Them

09/07/2017 03:01 EDT | Updated 09/07/2017 11:03 EDT
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Sometimes life pitches you a financial curveball. These can be big ticket items, life event expenses or a variety of expenses that come out of left field, like medical bills or home repairs. Whatever the reason, the costs usually need to be addressed right away, which can leave you scrambling for a source of funds.

During these times of potentially heightened emotional stress, the flexibility and accessibility of a personal loan can be a smart way to cover the costs. They provide competitive, fixed interest rates, a fixed monthly payment amount, and a payoff date so you know exactly when you’ll free of the debt.  Banks and credit unions offer these types of loans as a responsible way to manage the unexpected, and unlike other types of loans, they don’t require collateral. That means you don’t have to put up a car or home against it to secure your loan. It’s your good financial standing, among other factors, that may qualify you. 

Of all the ways to finance unexpected and large expenses, personal loans aren’t as well-known, but can be an extremely helpful financial tool. A 2015 National Financial Capability study conducted by the Financial Industry Regulatory Authority (FINRA) found that half of all Americans don’t have an emergency fund and nearly a third rely on expensive financial tools such as payday loans when they need to borrow money in a pinch.  As a wiser alternative, personal loans offer greater benefits for a much lower cost that is fixed, which may be why more and more people are turning to them. Here are 8 of the most common reasons why people use personal loans as a smarter way to finance life’s curveballs and major life events.

  • 1. Adopting An Infant
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    It’s common for families to pay fees upwards of $40,000 when adopting a healthy newborn, whether independently or through a private agency. According to American Adoptions, the average fees range anywhere from $3,978 to $39,966, but for inter-country adoptions, families may pay even more, including travel and living expenses while in a foreign country. Hopeful parents might also choose to pay a birth mother’s medical expenses, and many states also permit assistance with the birth mother’s living expenses. During this unsettled time of heightened expectations, a personal loan can be a source of certainty with its set interest rate and fixed monthly payment. When your little one does finally arrive, having predetermined payments can be a relief for the preoccupied hands and minds of new parents.
  • 2. Wedding Costs
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    Most people end up paying more than originally budgeted due to surprise wedding costs. Unexpected expenses such as gown alterations or additional venue and entertainment services quickly increase overall costs, and many people find themselves unprepared. In the U.S. the average cost for tying the knot has soared to over $35,000 according to a 2016 Real Weddings Study. If you are the parents of the couple or if this is a second marriage, you might be tempted to dip into your retirement savings for easy funds. There are many reasons why experts argue against this option, and the SEC has issued a consumer alert about the risks of using 401(k) debit cards because of the multiple fees. Also, if you fail to pay back all of the money during the specified time period, there can be significant penalties and tax consequences. With a personal loan, you can leave your retirement funds intact and avoid messy tax issues altogether because loans are not considered taxable income by the federal government.
  • 3. The Death Of A Family Member
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    The average funeral is said to cost around $6,000, but most families end up spending closer to around $10,000 once they add up the cost of flowers, embalming, and headstone engraving. The national average for a simple cremation costs $1,650, but most funeral homes charge a fee to forward the remains to another funeral home ($1,000 to $3,000), and there’s another fee from the funeral home on the receiving end ($800 to $2500). All funeral expenses have to be paid upfront, before the services and before the estate is settled. Many deaths are sudden and unexpected, leaving you with large bills that need to be paid quickly, with funds you may not have. A personal loan can help shoulder the load, and some lenders make the application and disbursement of funds fairly easy, which may be especially important to you during a difficult time. It’s a good idea to find a reputable lender that offers benefits such as loan decision the same day you apply in most instances, funds sent  as early as the next day after you accept the loan, and customer service to help walk you through the process.
  • 4. Major Car Repairs
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    Since 2008, more Americans have been holding onto their cars longer and opting instead to make the repairs to keep the car running. There are a few major repairs that can be hugely expensive, and this can be a problem if you rely on your vehicle to get you to and from work or appointments and errands. An engine overhaul where the vehicle’s cylinders have to be replaced costs from $7,000 to $10,000, a new hybrid battery will set you back $6,000, and repairing today’s computerized transmission systems can run upwards of $5,000. Establishing an emergency fund is generally considered the best practice to prepare for times like these. If you don’t have an emergency fund, a personal loan can give you a ready-made option.
  • 5. Moving Expenses
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    Relocating your entire life for a new job or career opportunity can be exciting, but filled with hidden costs. If you opt for moving yourself, even U-haul fees can add up by the time you pay for the added mileage costs, gas, and damage protection. If you hire a moving company, the American Moving and Storage Association says you’re looking at an average cost of $4,300 for out-of-state and about $2,300 in-state. Another option for a short-term move, storage units range from $95 to $180 a month, adding up to $1,140 to $2,160 a year. Once you get moved into your new home sweet home, additional costs include the security deposit or down payment, buying new furniture, and window treatments, all of which can add another $2,000, or more. Securing a personal loan to cover these costs can reduce the financial stress so that you can focus on getting to know your new surroundings and making your new place feel more like home. A personal loan could give you the funds you need to cover multiple expenses at a potentially lower interest rate than other borrowing methods, and it also offers a clear target payoff date. Look for a lender with no processing fees, closing fees or origination fees, and no penalties for paying off your loan early. They’re out there, so don’t pay more than you have to!
  • 6. Unexpected Medical Bills
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    If you’re faced with more medical debt than you can handle with savings, you’re certainly not alone. According to a 2016 report from the Kauffman Family Foundation, more than a quarter of all American households are struggling to pay medical bills, even if they have health insurance. More than half of these expenses are the result of an accident, sudden illness, or a one-time medical event. Other common but usually uncovered procedures include infertility treatments, acupuncture, and weight-loss surgery.  The No. 1 reason why consumers are contacted by a collection agency is because of medical debt, and going into collection could hurt your credit report. A personal loan can allow you to reclaim control of your debt with flexible loan payment amounts and terms, with some lenders offering terms up to 84 months.
  • 7. Surprise Vet Bills
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    Veterinarians rely on many of the same diagnostic tools and treatments that doctors use such as MRI and CT scans, cardiovascular surgery, and total hip replacement. While these advances improve the lives of our pets, for pet owners, they can be a huge expense to take on. A 2016 cost of pet care report suggests that pet owners pay as much or more for pet healthcare as their own. Some dog’s stomach issues, for example, can cost more than $6,000 to diagnose and treat. Common ailments such as cruciate joint injuries in dogs and cats cost upwards of $3,000, and cancer is diagnosed in 12 million pets annually. Veterinarians recommend that pet owners set aside a pet fund of $2,000 to $3,000, the minimum you’ll need should a serious situation occur.
  • 8. Paying Off debt
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    Sometimes debt can creep up on you so quickly, the many bills and payments feel almost unexpected. The most common reason people turn to the personal loan option is because they can help pay off these higher-interest debts by combining them into one loan with a fixed rate, a predictable budget-friendly monthly payment and target payoff date. This can possibly save you hundreds and even thousands in high-interest costs.

Any of the above financial curveballs and big-ticket items can contribute to an unmanageable debt load, and it can be stressful to manage multiple bills from multiple sources. If you’re finding it hard to make your minimum payments or you have multiple high interest debt payments to make, then it might be time to take action. The average household debt costs consumers $1,300 a year in interest. Personal loan calculators like this one can help you consolidate your debt and figure out a payment schedule that keeps your finances in the ballpark of the possible.

Discover personal loans are a flexible and accessible option to help finance life’s curveballs and major life events. Learn more at Discover.com/personal-loans.