Being prepared for a financial emergency or the unexpected is a reality for many people, but nearly 60% of US citizens would struggle to do so, according to a new poll. With only 40% surveyed able to cover the cost of a $1, 000 emergency bill, there are concerns the majority of the public are unprepared financially.
It seems the problem stems from the saving habits of millions of people as only 41% surveyed could pay using savings, with 16% opting to use a credit card and 14% borrowing from friends or a family member. Having very little available in savings is a common trend seen, with many people choosing to use available credit they already have or apply for more. Paying into regular savings is a recommended habit, with various experts suggesting to have between 3x to 6x monthly salary saved just in case. In theory this is a good base amount to have just in case it’s needed, but the reality for many people is this is either not possible or will take a long time to achieve.
Some people have no other options than taking out credit in an emergency. With a reported 21% of working Americans not saving anything at all, this is where many turn to credit or family and friends for help. Taking out a loan for any reason, emergency or not, is a big commitment that can be difficult to achieve for many, especially those with bad credit. In a situation with no available savings, many lenders have filled the gap to help resolve the situation. Emergency loans for bad credit are an attractive proposition for people in this situation. Most are able to consider what someone can afford rather than solely focus on an applicant’s credit history. This can be particularly helpful for people that need funds quickly, as most emergency loans can be approved and paid out by the lender on the same day.
Emergency Funding Options
Preparing for the unexpected by putting money aside regularly to build on is a tried and tested long term habit. When done successfully, many people avoid being caught out by the unexpected. An emergency fund is the solution advised by experts to help people work on regular savings, even for a small amount. In theory, it will help avoid further lending during a stressful experience, unless it’s absolutely necessary. Paying for an emergency bill or repair depends on someone’s circumstances, so some solutions are not suitable for everyone, but provide helpful ways to resolve them.
Many people in the short term still need to rely on further credit to get through a financial crisis. This is especially apparent when it can’t wait until the next payday and for people with no available credit or savings. According to Bankrate, 13% of people said they would reduce spending on other things, whilst 7% simply said they would do something else or don’t know. This could mean looking to raise the funds needed by selling unwanted possessions or working overtime to earn more. Depending on how quickly someone needs the funds and how much is needed, this can be the unfortunate reality for many trying to resolve an emergency.
The High Costs of an Emergency
A credit card can be a huge advantage in this situation if someone has available credit. Generally, this quickest way for many people to pay for an emergency if they do not have the savings. This is because a credit card is generally accepted everywhere and will also ensure the payments just in case of fraud. Other options some look to explore include credit in the value of their owned property. In a home emergency that needs repairs after a flood or electrical failure, for example, the equity within the house value can be used to cover it. This is a convenient option if repairs are costly, depending on how much equity is available. This isn’t always a quick option for homeowners, but has helped many people in an emergency where further repairs are needed.
One of the most concerning statistics relates to how much some have had to pay out for an emergency, with 29% surveyed by Bankrate advising it cost $5, 000 or more to resolve. This highlights just how expensive it can be when the unexpected hits, with many Americans not prepared despite warnings over not making regular savings. With the average US citizen having four credit cards per person, the signs are if the credit is available, the emergency funding for many may not be a priority.