While you may already have lots of plans for your finances – one avenue that you should reserve for you money is to have an emergency fund. The fact of the matter is that having some extra money on hand is the best course of action at any given time in your life.
But what if you have debt and bad credit – can you really afford to still save additional money? Well, of course paying off your debt is a good idea if you have it, but also trying to save some money for a rainy day should be heavily factored into your specific financial situation as well.
Reasons for Having an Emergency Fund
Unforeseen Car/Home Repairs
Of course there are various reasons for having an emergency fund. One of the main reasons is if you are all of a sudden faced with situations such as needing to pay for large expenses associated with your home or car. In the event your home or vehicle should require urgent repairs then having some extra funds in a savings account can definitely help in a pinch.
Sudden Job Loss/Medical Issues
Another reason for ensuring the presence of an emergency account is in case you suffer a loss of employment. If all of a sudden you are without income coming in, this can really pose a major problem in terms of being able to pay your bills, as well as your other daily expenses.
Furthermore, if suddenly you are stricken with an illness or medical condition, not only may this mean you will have additional medical expenses – it can also mean you may temporarily be unable to work and earn an income. Either way, in this instance you may need to fall back on the supplemental income you have tucked away in your emergency funds.
Avoiding Crisis Mode
By having some savings to reply on you can also avoid experiencing a full-blown crisis of sorts. If all of a sudden you are without money, this could cause a lot of added stress. This can of course affect your health and overall well-being, which as we know can lead to a lot of additional problems, including poor decision making with regards to your finances.
Turning to your emergency fund can alternatively help to reduce stress and worry and instead with a clear head, you can remain focused on proper financial management, without entering into crisis mode – a path that can lead to more spending and more debt.
Reduce Your Debt
Here is where the debt-reduction part comes into play. By continuing to maintain some form of an emergency fund, you can also allocate a portion of this money to relieving up some of the looming debt you may have. While having some debt is rather common for many people, if your debt is so high that it is preventing you from keeping up-to-date on your bills, and you are at risk of entering into extreme financial turmoil, then being able to access some additional funds could really come in handy in order to reduce your debt load and move it into more manageable territory.
Again, if you have lots of debt already, yet not enough money to keep paying it off at a steady rate, then this will lead to the accumulation of more debt. Debt can come upon us all of sudden and for a variety of reasons, so it makes sense to have extra income to ease the situation and avoid having the added stress placed upon us.
By lowering your overall debt load you will subsequently be able to improve your credit score also. With a poor credit score, this can prove difficult when it comes to applying for future loans. Therefore, having an emergency fund on hand that can be used both to lessen your bad credit as well as in the case of any unforeseen need, is an all around important position to maintain.
It can be your overall goal to find a balance between having some savings and keeping your debt under control. this Reality can reinforce even further the need for an emergency fund – which can be your ally in tackling a variety of financial situations you are likely to face over the years.