(BPT) – Even when times are good, it’s tough for most people to handle unexpected expenses. According to Forbes, nearly 78% of U.S. workers live from one paycheck to the next, with little or no money set aside for an emergency. But especially during uncertain times, any unexpected occurrence — from a broken appliance to a punctured car tire — can send a family into a downward spiral of debt that just makes the situation worse.

Tough choices

When a family has no cash set aside and only high-interest credit cards to draw upon, the resulting interest payments can turn a simple set of tires or a cell phone replacement into a major financial setback. And if a payment is missed, that does further harm to your credit rating, making any future borrowing even more difficult.

Other solutions to a cash crunch can be just as problematic. A recent survey by The Harris Poll¹ on behalf of Purchasing Power, LLC revealed that 21% of U.S. adults borrowed from their 401(k) over the course of one year. While that may seem like a good solution for a short-term emergency, borrowing from your 401(k) can create problems in the future, such as:

• You’ll have to repay the loan with after-tax dollars, losing the benefit of that pre-tax investment.
• You’ll lose out on wealth you could be building by leaving money in the 401(k).
• If you fail to repay the loan promptly, the amount owed will be considered a withdrawal, so you’ll end up owing both tax and penalties on that amount.

Better options for unexpected expenses

What are the alternatives to using high-interest credit cards or borrowing from retirement savings like a 401(k)? Here are some options to consider before making choices that could hurt your financial future.

• Sell unused items. If you have unused items in your home, chances are there’s someone out there who would pay cash for it. Check out Craigslist or Ebay and see how much people are willing to pay for what you’re selling.

• Reassess your household budget. Look for any recurring expenses you can do without to free up more monthly cash. Consider cutting the cord on cable and/or renegotiating with your internet/cell phone provider.
• Consider a side-hustle. Use your skills to moonlight on a contract basis or sell homemade items online. Even providing services for a fee in your neighborhood such as yard work, minor repairs, childcare support or dog walking could help you set a little money aside.

• Borrow from family or crowdsource. Friends and family may be willing to help — especially for a short-term, specific expense. Determine exactly how much you need to cover the expense, and just ask for that amount. If it’s a loan, agree on repayment and interest terms. If you’re crowdsourcing, don’t accept money that exceeds your goal.
• Review your employer’s voluntary benefits options. Take advantage of financial tools that may be available to you. For example, Purchasing Power^® allows workers to secure a replacement washing machine or automobile tires without incurring any monthly interest or other fees over the course of a manageable 12-month payment term. The repayments come directly from payroll deductions, so you won’t risk missing a payment and harming your credit score.

“Unfortunately, credit card debt is at an all-time high, which can create even bigger problems for borrowers down the road. When the refrigerator stops working or your kids need a new laptop for school, many Americans — especially younger workers — don’t have the resources to cope with it,” says Trey Loughran, CEO of Purchasing Power. “Paying with cash or using a low-interest credit card are the best ways to cover unexpected expenses, but that’s not always possible. The challenge is finding alternative ways to meet short-term needs without compromising long-term finances.”

Employers interested in offering Purchasing Power for their employees can visit Corp.PurchasingPower.com to learn more.

¹ Harris Poll on behalf of Purchasing Power^® among 807 U.S. adults who are employed full-time, December 2019.