There are minor emergencies such as a flat tire, root canal, or a busted pipe that happen all the time. But for most Americans, these inconveniences are true recipes for financial ruin, states Bankrate.
Every second person is at risk
In a recently released survey, Bankrate found that 63% of Americans don’t have enough funds saved to cover a $500 financial setback. Only half of those who stated having enough cash to handle a similar emergency were defined as making more than $75,000 in annual earnings.
About one-fourth of the respondents stated that they would cut back their spending if an emergency happened. 15% would borrow money from friends or family, while another 15% could use their credit card to pay for an emergency.
More debt is not an option
Credit cards can turn a small setback into a long-drawn financial issue, stated spokeswoman Lauren Berg of Simple Finance. She wants to discourage any offloading onto a credit card because that would inevitably charge interest, when you don’t have the money to spend to begin with.
Sheyna Steiner, a senior investment analyst of Bankrate, stated that borrowing enough to get past a rough spot also means you may not have credit available when you will really need it.
When you need a credit line, it may or may not be there, depending on the existence of any changes to your credit report. One thing that happened during recession is that people’s credit lines were reduced. So, if you are counting on a credit line being extended to you in your time of need, do double-check yourself.
It is even worse to turn to payday loans in moments of desperation. What people don’t know is that the annual interest rate for a payday loan can go as high as 400%. These can put you into financial ruin.
You can count on trouble
One also shouldn’t expect smooth sailing all the time. In the survey, only 57% made it through the year without having a financial emergency.
Unexpected expenses can happen, and they shouldn’t be unexpected. 4 out of 10 people stated that they or their family member had an unplanned major expense in the last 12 months, said Steiner.
How can you start saving?
For many saving enough is a lot easier said than done. Americans making those large student loan payments with only a modest amount of income available will find it hard to set money aside.
Saving money can feel like a dauntless task whenever you are faced with debt. Starting small and focusing on gaining confidence is key to money management, stated Berg.
Steiner advised cutting back on debt payments in order to prioritize saving up for an emergency. If you want to prepare for that inevitable car repair, leaky roof, or a plumbing issue, cut back your debt spending to the minimum, save up that money you need, and then go back to attacking your debts.
[Featured image credit: David Sacks / Getty Images]