With the economy the way it is and the unemployment rate as high as it is there is more talk about having a large emergency fund than ever before. This is a great philosophy, but many people are carrying credit card debt that has interest rates of 20%-30%. So, that brings up the question as to whether a large emergency fund is more important than eliminating high interest credit card debt.
The financial experts seem to vary in their opinions as to how much of an emergency fund you should have and whether it should be made a priority over paying down credit card debt. Personally, I feel that $500-$1,000 in a savings account will be enough in most cases to keep from using your credit cards in the case of most unplanned expenses. It will give you a cushion that will help you avoid bank charges and other small unexpected expenses.
Credit card debt is costing you money and saving will not make you money, but it will give you peace of mind. It is difficult for someone else to tell you what is best for your personal financial situation. I heard a well-known financial expert say that you should concentrate on whichever is going to make you feel more powerful and will motivate you to move forward financially. You also have to take a hard look at what is going on in your life. How great is the potential that you could see a reduction in income?
Credit card debt management should be an essential part of your personal finance program. For some people, it just a matter of paying their balance off every month and others may have to find a way to increase their debt repayment. Some people may have to look into enrolling in a debt management plan in order to get their consumer debt under control. If you feel stuck, you may want to talk to a nonprofit debt counselor to see where you stand and what you need to do to eliminate your debt.
If you are fortunate enough to have little or no consumer debt, than you can begin or continue the process of building your emergency fund. The more you can put into this fund the more financial security you will have. It is that simple. Three months worth of expenses in this fund is an excellent start, but six to nine months of expenses is ideal. If you have more than six months of expenses, you stand a good chance of being able to weather any storm.
If you have a lot of credit card debt and no emergency fund, this task can seem overwhelming. Start by putting $500 away and adding $50 or $100 to it each month and put everything else toward paying off your credit card debt. If you have more than $10,000 in credit card debt, you may want to look into some options that can escalate repayment, such as; credit counseling or debt settlement, if your debts have been charged off. There is hope for you being financially stable, but it will take a plan.
{ 0 comments }