It’s important to have money set aside for emergencies, yet four in 10 Americans say they’d struggle to come up with $400 in a pinch, according to the Federal Reserve’s annual check-in on Americans’ financial health.
Without a cash cushion, those strapped consumers are likely to end up in more financial trouble when they encounter a financial emergency. That’s because they told the Fed they would turn to expensive payday loans to pay for an unexpected expense, even though these loans can trap borrowers in a cycle of repeat borrowing due to their high rates and fees. Others said they would put the emergency expense on credit cards and pay it off over time, potentially racking up interest.
But there are other strategies to build up a quick savings cushion rather than turning to expensive loans or adding to credit card debt, financial experts note. Some of the tips can be turned into longer-term strategies that can help build an even bigger financial base over six to 12 months.
1. Sell things you don’t use anymore
Your attic might prove to be a treasure trove for your bank account. There are sites where you can sell everything from designer clothes to your grandma’s old china set. Poshmark, for instance, is geared to fashionistas selling their used clothing, while eBay remains a standby for everything from antiques to your kid’s old Lego toys. Many of these sites charge seller fees, so make sure to do your research to find the right fit.
“You can't take it with you, and we have a lot of stuff that we have accumulated over the years,” says Greg McBride, chief financial analyst at Bankrate.com. “Go through the attic, go through the garage, and ask, ‘Do you really need that’?”
2. Get a side hustle
Don’t overlook the gig economy, which has helped millions of Americans make extra cash or even create a new career. Before jumping into a new gig, check out SideHusl, which reviews the roughly 300 platforms where you can make some extra cash. The site gives the lowdown on how gig employers work, how much you can earn and pitfalls to be aware of.
“There are 168 hours in a week, and even if you are currently working 40 hours a week, there’s plenty of wiggle room in there to put a few hours into something else, particularly if it can put some money in your pocket,” McBride notes.
3. Take a refund and put it in savings
Americans are hitting peak refund season due to the tax filing deadline. Almost 100 million residents are likely to receive a refund from the IRS, which can be socked away into a savings account for a rainy day.
The typical refund represents the biggest “paycheck” of the year for more than four of 10 workers, a Credit Karma Tax survey found. With the average refund approaching $3,000, it’s wise to set some aside for a rainy day, experts say.
4. Transfer credit card balances
If you’re paying interest on a credit card balance, consider a transfer-balance card. These cards can free up some cash by eliminating your monthly interest during the card’s introductory period, which can range from 15 months to 21 months, thereby giving you more time to pay down a balance.
There are a few catches, however. You’ll typically pay a balance-transfer fee, which often ranges from 3% to 5% of the balance. And they’re also often only available to consumers with good credit scores of 700 points or higher.
5. Skip the credit card
Pay cash instead of using plastic, given that you’ll probably think twice about making a purchase when you handle actual bills. Consumers are more likely to spend more if they aren’t using cash, research has shown.
“If you know you’ll need to spend more than you currently have on necessary expenses to make ends meet, you may resort to using your credit card,” notes Dana Marineau, financial advocate at Credit Karma. “If you’re looking for an alternative, oftentimes personal loans will have lower interest rates than credit cards.”
Personal loans such as Marcus by Goldman Sachs offer rates as low as 6.99%, considerably lower than the typical credit card rate of about 17%.
6. Cut expenses
About three in 10 Americans say they aren’t budgeting, according to Debt.com. But it’s never too late to start, and starting a budget and keeping track of your expenses can help you figure out where you’re spending too much or could cut back. Apps such as You Need a Budget or Mint can help you track and manage your expenses.
Likewise, shop around for better rates on your insurance plans, including homeowners insurance and car insurance, Bankrate.com’s McBride recommends.
Aimee Picchi is a business journalist whose work appears in publications including USA TODAY, CBS News and Consumer Reports. She previously spent almost a decade covering tech and media for Bloomberg News. You can follow her on Twitter at @aimeepicchi.