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Poll: Only half of Americans have more emergency savings than credit card debt

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Many Americans are just a burst pipe, a car breakdown or a sick pet away from costly credit card debt, according to a new Bankrate survey.

Just over half (53%) of American adults have more money stashed away in an emergency savings fund than they have accumulated in credit card debt, the January survey found. 2022 to more than 1,000 American adults.

And more than one in five US households (22%) have more credit card debt than the amount they have saved for unexpected expenses. The good news is that this number is down five percentage points from Bankrate’s January 2021 emergency savings survey.

Finally, 15% of households have no credit card debt, but no emergency savings. It’s also a precarious financial situation, says Greg McBride, CFA, chief financial analyst at Bankrate: “Without emergency savings, you could be one unexpected expense away from having high-cost credit card debt.

Millennials are more likely to have more card debt than savings

Millennials were more likely of all generations to say the amount of credit card debt they owe is more than the amount they saved for a rainy day.

Here are the percentages of each generation who have more credit card debt than emergency savings, according to the survey:

  • 32% of millennials (26 to 41 years old)
  • 24% of Generation X (aged 42-57)
  • 23% of Gen Zers (aged 18-25)
  • 15% of baby boomers (aged 58-76)

The lack of an emergency fund can mean you’re borrowing money from friends and family or pulling out a credit card if something goes wrong, says Melinda Opperman, president and chief relationship officer at Credit.orga non-profit organization that provides consumer education and debt relief.

Using a credit card can add more pressure if you are in debt. And you might not even have the option if your cards are maxed, Opperman points out. Being in this kind of financial difficulty can exacerbate the stress of a daily accident like a flat tire. “It becomes a huge emergency and you panic. It can ruin your whole day,” she says.

But an emergency fund can turn the same problem into a minor inconvenience, she says. “It gives you such peace of mind; you can’t put a price tag on it.

The pandemic is hitting the wallets of young adults the hardest

Many households hid money during the COVID-19 pandemic because they were spending less on expensive categories like travel and receiving help through federal stimulus checks and other relief programs. .

“During the pandemic, many people have made progress toward achieving their financial goals,” says Bruce McClary, senior vice president of memberships and communications at the National Foundation for Credit Counseling (NFCC).

In fact, a 2019 pre-pandemic Bankrate poll found that only 44% of Americans then said they had more emergency savings than credit card debt, nearly 10 percentage points lower than the new survey.

But overall, about one in three American adults say their emergency savings account balance has gone down over the past two years. Compared to before the pandemic, the survey found that:

  • 34% have less emergency savings now
  • 33% have the same amount of emergency savings
  • 27% have more emergency savings now

The generation most likely to have less cash savings now than before the pandemic: Gen Z. 46% of Gen Zers have less money in emergency savings now than before the onset of the pandemic. pandemic in early 2020. Just over one in four in this age group (28%) have more.

“Young workers were the hardest hit by unemployment and income disruption early in the pandemic,” McBride says. “And that took a toll on their emergency savings.”

This is likely due in part to the fact that many young adults work in service industries in fields that have been hit hard by the pandemic, including travel, restaurants and hospitality, McClary says.

Upper-middle-income households are more likely to have more card debt than their savings

Households earning between $50,000 and $74,999 a year are the most likely (38%) to have more credit card debt than emergency savings, the survey found.

This may be partly because consumers in higher income brackets also tend to have higher credit limits on their cards, Opperman points out. Here are the percentages in different income brackets whose credit card debt exceeds their emergency savings:

  • Low income (less than $30,000 per year): 31%
  • Lower middle income ($30,000 to $49,999 per year): 26%
  • High income ($75,000 and over) — 14%

“The impact of every dollar on a person’s budget is magnified when they make less money,” McClary says. “And the cost of high-interest debt can also put additional pressure on comparatively low-income households.”

Top Priority: Get Out of Debt or Save

The poll found that half of Americans (50%) are focused on increasing their savings while nearly one in three (32%) prioritize paying down debt. According to the survey, less than one in 20 households (4%) focus on both simultaneously.

Older millennials and Gen Xers were split almost evenly between prioritizing debt repayment and emergency savings. But nearly two in three Gen Zers (64%) said they prioritize increasing emergency savings over paying down debt (30%). Young baby boomers (aged 58-67) also prioritize saving (57%) over debt repayment.

The survey found that Americans who have been building up their savings have made a lot of progress recently. The number of households who report having more savings now than before the pandemic increased by 10% compared to July 2021.

Many struggle with whether to prioritize paying off debt or saving. It makes sense to make savings your number one priority, up to a point, says Opperman. “Until you get an emergency nest egg of at least $1,000, I would keep that as my goal,” she says.

How to pay off debt and increase emergency savings

Do you lack sufficient emergency savings to get you through a crisis? Here are five expert tips for reducing any credit card debt you have while increasing your emergency savings:

  1. Rearrange your budget. Many people get tricked into “emergencies” which are actually irregular expenses they forgot to budget for, says Kristy Marshall, founder and CEO of Money Bliss. For example, the car insurance premium you pay every six months, the property taxes you pay every year, or your dog’s annual checkup at the vet. “Not having money set aside for these things is usually what causes people to have an emergency,” Marshall says.
  2. Start small with emergency savings. Don’t have an emergency savings account? Start small, Opperman recommends. At Credit.org, they recommend starting by saving $500 in an emergency savings account, she says. Once you hit that goal, aim to hit $1,000, she says. Even having a small amount of emergency savings can help you handle day-to-day issues like replacing a $100 tire. You can start by transferring as little as $25 into a savings account each payday, she says. Try using a savings calculator to set an achievable and trackable goal.
  3. Take the challenge to save money. Participate in a money saving challenge can be a great way to get started or create an emergency fund, says Marshall. Her favorite challenge: a no-spend month where you write down the items you want to buy, but don’t buy them. Instead, save that money. And check social media for a local “buy nothing” group you can join to clear the clutter and pick up the items you want without spending any money. “At the end of the month, decide what you missed out on and what you actually want in your budget,” she says.
  4. Minimize interest payments. High interest rates can eat up a significant chunk of your monthly credit card payments and make paying off your debt much longer. Try to lower your credit card interest rate if possible, recommends McClary. If you have weak credit and are struggling to make payments, this may mean setting up a debt management plan (DMP) through a credit counseling agency. non-profit. They may be able to negotiate lower interest rates with your credit card companies, he says. And if you have good credit and can easily make your payments, you might want to look for an interest-free credit card offer.
  5. Grow your emergency fund. Once you’ve established a small emergency fund and are on track to pay off your credit card debt, build your fund. But what is a good amount of emergency funds? Many personal finance experts recommend that you strive to have six months of expenses to protect you in the event of a major emergency like job loss or illness. Start by putting a small percentage of your income into your emergency account and then build it up over time, McClary says. For example, build up to saving 10% of your income for one year, he says, then increase it to 15% the next year.

One final thought: It’s important to know that sometimes you’ll have to spend some money from your emergency fund, and there will be progress and setbacks, McClary says.

“Your emergency fund is supposed to be there for you to tap into if you have an emergency,” he says. “So don’t worry.”