Survey Finds 1 in 4 Americans Are on Brink of Financial Crisis

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Financial publisher Bankrate recently conducted a survey that painted a dire picture for a large percentage of Americans. According to their research, 25% of Americans could be one emergency away from financial ruin.

Bankrate was looking at American financial habits when it came to maintaining an emergency fund or savings account. What they found was worrying. One in four Americans hold credit card debt in excess of their savings – meaning they owe more than they have managed to save. Even worse, the survey found that 29% of Americans have absolutely no emergency fund or savings at all.

Many things could qualify as an emergency expense. Medical expenses, car and home repairs – these can be emergency expenses because they are necessities that can put an enormous strain on your finances if you aren’t prepared.

If you’re among the Americans who have little or no emergency savings, the good news is that you can start addressing these issues immediately with smart financial behavior.

How to Start Saving

If you don’t have a savings account, your first step should be to open one that is separate from the account you use for regular spending. Conventional wisdom says you should have 3-6 months of expenses in your emergency fund, and so your next step should be to establish a savings balance to strive for.

If you have plenty of disposable income, contributing to this savings account can be fairly pain free – simply determine how much you can afford to save, and divert that expendable money into your savings account each month as you receive income.

For those of us with less excess income, it’s more difficult to save for emergencies. Start by identifying where your wasteful spending goes or where your spending can be cut. If you spend a lot of money eating out, you can cut back your restaurant budget and put the saved money into your savings account. If you are a cable subscriber who could make do with a streaming movie service, you can cut back your spending there. Whatever you end up saving using these cost-cutting measures should go directly to your savings account.

This can be psychologically difficult. It’s tempting to spend any money you end up saving. If you have an issue with discipline, many banks offer a service that directly deposits a portion of your paycheck to your savings account – no need for you to manually transfer the funds.

No matter your strategy, it’s important to come up with a plan right away and start immediately.

Reduce Credit Card Debt

Without an emergency fund, credit card debt becomes a self-perpetuating reality. If you have no savings available when an emergency occurs, you’ll most likely have to put those expenses on your credit card. Large credit card payments further reduce your ability to save for the next emergency expense- and so the cycle continues.

You should avoid racking up new credit card debt and make it a priority to pay down your existing balance. If your credit card debt is higher than your savings account balance, this is a good indicator that you’ll want to tip those balances.

Using the same tactics as you do for saving – reducing wasteful spending, identifying areas to cut back spending, and diverting those funds to credit card payments – you can pay down your credit card debt, which will both help you save and help your credit score by reducing your debt utilization ratio.

How to Prioritize

If you need to pay down credit card debt AND save for emergencies, it can be difficult to prioritize.

Paying down credit card debt first will save you money in interest in the long run and help free up more money to save in the future. However, saving now will help prepare you for emergencies and reduce the need to put those expenses on your credit card. You may have to choose which to prioritize, or find a balance between the two.

If you want to do both, you can focus on small savings gains in the short term, saving up enough cash for smaller emergencies, while devoting the rest of your concentration to paying down credit card debt.

Your particular circumstances will affect your priorities – whether you should focus on credit card debt or savings depends on your individual scenario. But no matter your situation, cutting costs and putting that money into an emergency fund or toward your credit card debt will help you prepare for the next time you have an emergency expense.

Related Articles:

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