Credit Card Debt vs. Emergency Funds
You probably already realize the importance of keeping an emergency fund for unforeseen events such as auto repairs or health issues. However, actually saving for the unexpected can be a challenge. By not planning, you can put yourself at risk for financial disaster.
A recent poll‡ from Bankrate revealed 24 percent of Americans have more credit card debt than they have in their emergency savings. Most people, 58 percent, who don’t struggle with credit card debt still fall short when it comes to having a strong emergency fund.
Greg McBride, Chief Financial Analyst at Bankrate, can’t stress enough the poor situation consumers are putting themselves into. “These numbers mean that three out of every eight Americans are teetering on the edge of financial disaster,” says McBride.
How to manage credit card debt
While there isn’t one definitive way to erase credit card debt in a hurry, below are a few helpful tips to expedite the process.
- Tackle high interest debt first
It may be easier for you to stick with a debt payoff goal if you attack the card with the lowest balance. However, most financial experts agree that the best practice is to pay down the balance on the highest interest card first.
- Double or triple payments
Consider doubling or tripling your monthly payments, or apply tax refunds towards outstanding balances. The faster you can tackle your highest interest card, the sooner you will reach a debt-free lifestyle.
- Stick with your plan
When faced with high debt, it is critical to track and budget expenses to monitor progress and keep spending habits under control. Once the highest-interest card reaches a balance of zero, it’s time to move on to the next highest interest card.
- Build an emergency savings
Building an emergency fund is just as important as getting debt under control. Tuck away money each month and set aside for emergencies only. Do this even if it means paying less on your debt payments. Most experts agree that a healthy emergency fund equals at least six months of living expenses.
Getting credit card debt under control requires excellent planning, dedication and patience. Once goals are met, it is important to keep moving forward with healthy spending and savings habits. Being financially prepared for life’s unexpected events is smart. Having peace of mind is priceless.
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