Over 24% of Americans owe more money on their credit cards than they have in emergency savings. This is a problem because credit cards charge higher interest rates than savings accounts pay, which makes it even harder for those Americans to ever pay off their debt.
"From a purely financial standpoint, it makes more sense to pay down that high interest rate before you start to save, said Kelly Long of American Institute of CPA's. "But not having an emergency fallback fund is just a first class ticket to getting further into debt."
The absence of savings increases the odds that you will need to open new loans to cover unexpected repairs, pushing you even further down that dark hole of debt.
The level of savings in this country is still low with only 58% having more in emergency savings than credit card debt. Even if you don't have credit card debt most Americans do not have three months worth of savings to cover expenses.
"It's difficult for people to really move the needle on savings when their income hasn't grown," said Greg McBride, Bankrate's CFA. "Savings is not a high enough priority for American households".
This is unfortunate since over 63% of consumers said they experienced a major unexpected expense in the last year, such as medical bills, moving costs or housing repairs. Seniors (ages 65 and over) and millennials (ages 18 to 29) were the least likely to have more credit card debt than savings. 73% of consumers with incomes over $75,000 had more money in their emergency savings than credit card debt compared to 48% of those making under $30,000.
It is recommended that you have a savings of six months worth of living expenses in an easily liquidated account. Start out small with maybe $500 or less and setting up an automatic transfer from your paycheck to your emergency fund, if you never see the money it is harder to spend.
With tax season approaching maybe use half of your tax return and put it in an emergency savings account to get started and then use the other half to pay down your credit card debt, it could be a win win.