Emergency funds
Americans are looking for debt relief, and forgoing bulking up their emergency funds. In the past, people were taught to pay careful attention to their emergency accounts. They were primarily interested in making sure they had between 3-6 months of income tucked away for emergencies, such as job loss, emergency medical bills or a hefty car repair bill. A new poll is showing that people would rather tackle debt relief, than keep emergency savings as a priority.
According to Russell Meyers, chief economist of Dawson and Brickers, “People used to see emergency funds as a way to save them in times of trouble. Unfortunately with the economy as difficult as it is, many people used their emergency funds. They see getting rid of debt first as key to not having to diminish their savings again.” Rather than start saving, many Americans are looking to consolidate bills, re-budget themselves or strict cut-backs as an option. But is this a wise option?
Savings lost
For years experts have touted the necessity of having between 3-6 months in emergency funds available. This account was a strict no-access account, meant to deal with job loss or another emergency. A good number of Americans spent months putting away money for their emergency accounts. Unfortunately, due to the recession, many savings accounts are gone. Marilyn Moore of Remington, Montana stated, “We used to have an emergency fund and thought it would carry us through any tough time. Unfortunately, it was depleted quickly…we thought it made us immune to financial problems.” Moore is part of many consumers who saw the emergency fund as an emergency tool, but never planned on having to use it.
Credit card companies in a bad light
After the banking and lending crash, consumers are more aware of finding debt relief than ever. Many are forgoing building savings and putting extra money into their debt. “Paying down debt is a priority with many customers…the recession brought out the bad side in credit card companies and people saw it. They are worried about what credit companies are going to charge them for next,” state Montgomery Rawl, economist teacher at Stanford University.
Studies are showing that people are moving towards paying cash for items, and leaning away from credit altogether. They saw the high interest rates card companies were suddenly charging. They saw their credit limits being sliced. The Obama administration vows to hold companies to a higher standard, but it will take time for those laws to pass. Consumers are opting for paying down credit and using it only for emergencies in the future. As Moore added, “We are not going to get taken to the cleaners by credit card companies when we’re having a hard enough time as it is already.”
Economist Rawl confirmed, “History has proven that when times get tough, people cut back on credit card usage and turn to good old cash for funding. It happened in the 70s and 80s…with this recession more people had been using credit, so that makes a larger sum of people turning their back on it now than ever before.”
Cash is king
Cash is still the most reliable option, according to many consumers. They are using cash to pay down debt and find debt relief, and then vow to use credit sparingly. Many people insist that cash is the most advantageous way to keep track of funds and truly budget. In the recession, every advantage Americans can get, they need to use wisely.
