One of the most confusing questions you may have about trying to set up a budget, take control of your debt, or simply prepare for the future is whether you should have an emergency fund if you have debt you need to pay off. Which comes first? How do you decide what\u2019s in your best interest?<\/p>\n\n\n\n
Let Honest Loans help you untangle the information you need to know and find an answer to the question that plagues thousands of households just like yours\u2014Should I have savings if I have debt?<\/p>\n\n\n\n
Being in control of our finances is high on most people\u2019s goals for life. No one likes the feeling of wondering how you\u2019ll make it to the next payday, let alone what would happen if there were an emergency. That\u2019s why many sources suggest that you keep an emergency fund. <\/p>\n\n\n\n
An emergency fund is an amount of money set aside to help if something unexpected comes up. It\u2019s usually a savings account that you can use for things like trips to the doctor, car repairs, and veterinarian bills.<\/p>\n\n\n\n
It makes financial sense to make sure you have some sort of buffer in your accounts, but is saving that extra money your first priority if you are also carrying debt? <\/p>\n\n\n\n
If finding a better way to manage your money is on your mind, it may be time to sit down and decide which route is best for you. Here are some points to consider to help you answer the question of whether you should have an emergency fund if you have debt.<\/p>\n\n\n\n
One of the easiest ways to tell where your money can do the most good is to check the interest rates on all your debts and your bank accounts. You can find this number on your normal bills. Look for the abbreviation APR with a percentage listed. This is how much interest you are paying on that particular account. This number is also used to show how much the bank is paying you in interest for the money you have saved in your accounts.<\/p>\n\n\n\n
Credit cards, small loans, and even car payments can carry high interest rates. The higher the percentage, the more you are paying the company in interest as you try to pay down your debt.<\/p>\n\n\n\n
On the other hand, most banks rarely pay an interest rate on the money you\u2019ve managed to save that is anywhere close to the interest rate you pay on your debts. For example, your credit card payment APR may be 15% while your bank will only pay you 1% APR; this difference between what you pay to borrow money and what your bank pays to keep your money in your bank account is massive.<\/p>\n\n\n\n
If you continue to carry high-interest debt over months and years, the interest on that debt can continue to grow as well.<\/p>\n\n\n\n
In cases like this, trying to save your money means that you aren\u2019t helping your money work as hard as it can for you. You\u2019ll want to put every penny you can into paying off those high-interest debts before worrying about building up a nest egg.<\/p>\n\n\n\n
If you are carrying a special 0% interest loan, it might make more sense to consistently pay your normal payment and squirrel away a little extra savings for a rainy day.<\/p>\n\n\n\n
This logic usually supports long-term debts like home loans as well. It is extremely unrealistic for most of us to pay off our house early. So, continuing to pay your loan faithfully is the priority. Then, if you aren\u2019t carrying other debts with high interest rates, it\u2019s time to think about putting a buffer in a savings account.<\/p>\n\n\n\n
It may be time to work on your savings account if your only debt is with lower interest rates on things like:<\/p>\n\n\n\n
Saving a little extra money seems like a good idea, but how much is enough? Recommendations range from enough to cover your essential expenses for one month up to six months. The trick is to start small, keep the money you are saving off limits unless it is a real emergency, and don\u2019t give up!<\/p>\n\n\n\n
Unfortunately, finding a sense of financial security through an emergency fund can feel out of reach, no matter how hard you try. When you are already stretched thin and living paycheck to paycheck, it can be just as nerve-wracking to think about the loss of a regular payday as it is to figure out how to save enough money to make any difference.<\/p>\n\n\n\n
So, what can you do? Be sure you\u2019re looking at the big picture, including things that may not seem obvious at first.<\/p>\n\n\n\n
Consider all the options you might have access to if you found yourself without a paycheck or with an emergency bill.<\/p>\n\n\n\n
Thinking about these types of solutions before the emergency happens can make it a little easier to find your way through, even if you don\u2019t have extra cash set aside.<\/p>\n\n\n\n
If you are looking for a trustworthy source of lending<\/a> to help you when you are in a financial pinch, let Honest Loans help you find a lender that may work for you. Fill out our quick and easy online loan request form<\/a>, and we\u2019ll reach out to our network of lenders to try to get you the funds you need as quickly as the next business day.<\/p>\n","protected":false},"excerpt":{"rendered":" One of the most confusing questions you may have about trying to set up a budget, take control of your debt, or simply prepare for the future is whether you should have an emergency fund if you have debt you need to pay off. Which comes first? How do you decide what\u2019s in your best […]<\/p>\n","protected":false},"author":2,"featured_media":40,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-39","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-online-loan-tips"],"yoast_head":"\n