Most Americans have an emergency fund, but 55% haven’t saved enough: survey
At a time when record inflation is driving up consumer prices, an emergency fund can help prepare you financially for unexpected expenses like home repairs, car maintenance and surprise medical bills.
Experts recommend consumers have enough emergency savings to cover up to six months of household expenses, but most Americans don’t have such a strong safety net, according to the 2022 TIAA Financial Wellbeing Survey.
While 78% of respondents said they had an emergency fund, only 45% said it could cover six months of living expenses if they lost their job.
Without a sufficient emergency savings fund, consumers may turn to high-interest credit card debt to fund unexpected expenses. And amid runaway inflation, US credit card balances are growing at a record pace, the Federal Reserve reports.
Keep reading to learn more about how to build your emergency savings and pay off debt that has accrued from unexpected expenses. You can visit Credible to compare rates on a variety of financial products, from high-yield savings accounts to debt consolidation loans.
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Tips for building an emergency fund
Having a solid emergency savings ensures that you won’t have to rely on credit card spending to cover unexpected expenses. It can seem daunting to grow your emergency savings fund if you’re starting from scratch, so follow these tips to get started:
- Make a budget to calculate your monthly expenses and your savings goal.
- Determine how much money you need to cover up to six months of expenses.
- Dedicate extra money and cash inflows like tax refunds to your emergency savings account.
- Set up direct deposit of your paycheck to a bank account.
- Open a high-yield savings account that is your interest-bearing safety net.
You can compare rates from high-yield savings accounts and several online banking institutions at once on Credible.
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3 ways to pay off debt due to unexpected expenses
Consumers may be tempted to turn to credit cards when faced with a financial emergency, but revolving credit card debt comes with high interest rates and high borrowing costs. If you’re looking for ways to pay off your credit card balance, consider these tactics:
- Credit cards with balance transfer
- Debt consolidation loans
- Non-profit credit counseling
Learn more about each debt management strategy in the sections below.
1. Credit cards with balance transfer
It may be possible to save money on your credit card debt by opening a balance transfer card with a lower interest rate. This allows you to transfer the balance of one or more credit cards to a new credit card offering more favorable repayment terms.
Keep in mind that you may incur a balance transfer fee of up to 5% of the total amount, and there may be balance transfer limits.
Some credit card issuers offer balance transfer credit cards with a 0% APR introductory period of up to 21 months. However, these promotional offers are reserved for applicants with very good or excellent credit scores, as defined by the FICO scoring model like 740 or higher.
You can visit Credible to compare balance transfer cards, some of which may offer an interest-free introductory period.
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2. Debt consolidation loans
A debt consolidation loan is a type of unsecured personal loan that used to pay off virtually any type of debt, from credit card balances to medical bills. Personal loans offer predictable monthly payments that you repay at a fixed interest rate over several years.
Personal loan rates are currently at historic lows, according to the Fed. The interest rate you are entitled to depends on your credit score and your debt-to-equity ratio, which is the amount of your monthly repayments divided by your income. Applicants with good credit will receive the best offers, while those with bad credit may see higher interest rates.
Most lenders allow you to prequalify to see your estimated interest rate with a soft credit check. This allows you to shop around for the best possible deal for your financial situation before completing a formal application.
You can compare debt consolidation loan rates on Credible for free without impacting your credit score. Then, use a personal loan calculator to estimate your monthly payment.
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3. Non-profit credit counseling
If you’re looking for ways to pay off your debt, but don’t have the credit score to qualify for personal loans or balance transfer credit cards, you might consider contact a credit counseling agency. A certified credit counselor can help you budget, manage your debts, and negotiate with your creditors on your behalf.
Depending on your financial situation, a credit counselor can enroll you in a debt management plan (DMP) to pay off your debts in fixed monthly installments. DMPs typically come with a low monthly fee, which can be waived if you meet certain income thresholds.
There is a full list of approved credit counseling agencies on the Department of Justice website. You can also visit Credible to learn more about your alternative debt management options, such as credit card consolidation loans and balance transfer credit cards.
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