As a general rule, it’s smart to have at least 6 months of basic living expenses saved up in an emergency fund. These cash reserves could help you cover an unexpected expense, like a car repair or medical bill, without taking out a loan or using a credit card.
But many Americans are not following this rule. We asked people about their savings and debt in our recent survey, and it turns out that only 53% of them have an emergency fund. And even then, they aren’t saving enough to cover 6 months of expenses. In fact, 58% of them have less than $5,000 saved.
Shockingly, 51% of Baby Boomers have less than $5,000 saved even though they are quickly approaching retirement age—or already there. And prospects for Gen X seems even more grim, with 62% having less than $5,000 in checking and savings combined.
Without having savings to pay for unexpected costs, Americans are forced to rely on credit cards to handle these expenses. And many Americans are spread so thin they use credit cards for simple everyday expenses as well, like food and utilities.
Falling back on credit cards for everyday expenses may be fine in the short-term, especially if balances are paid in full each month. But long term, relying on credit cards without having any savings puts people in financial danger. If they experience a reduction in their income or another unexpected expense, they will no longer be able to pay bills in full and will be forced to enter a cycle of high-interest debt and fees they may not be able to get out of.
Americans seem to understand this danger, because our survey also shows how credit card debt takes a huge toll on their emotional wellbeing. In fact, 46% of those surveyed stated that they feel very stressed about their debt and 20% said they can’t sleep at night because of debt.
If you’re so overwhelmed by credit card debt that you can’t sleep at night, it may be time to get debt help. Here are some red flags that your debt is getting out of control:
- You can’t pay off your balance and are carrying credit card debt month to month
- You constantly worry about getting your next paycheck so you can pay your credit card bills
- You’re having trouble making your minimum payments
- You’re maxed out on one or more of your credit cards
- You have already fallen behind on credit card payments
The first step toward solving your debt problem is to educate yourself. And a good place to start is by downloading our free guide, How to Manage Debt. It’s full of information about a range of debt solutions, from debt consolidation loans to credit counseling and more.