A new survey published by Bankrate.com, a personal finance website, found that only 39 percent of Americans could cover a $1,000 emergency expense. Job loss, surprise medical bills, property damage or a chronic illness could very easily upend the financial lives of these individuals. There are many, many ways to prepare for a financial emergency. However, you could get the process started by using the following tips.
- Start an emergency fund: You could create an emergency fund to cover unexpected expenses. If you have a tax refund coming in the next few weeks, then you should consider adding it to your emergency fund. A good rule of thumb is to ensure that your emergency fund can cover you for six months.
- Have an emergency budget in place: You could create a budget that you would use during an emergency, such as job loss. Figure out which expenses you plan to cut before an emergency occurs. An emergency budget can also make it easier for you to figure out how to utilize your savings.
- Make sure you are adequately covered by your insurance policies: Disability, health, life and home insurance could help cover the costs of unexpected emergencies. For instance, a decent disability insurance plan will cover a large percentage of your income if an illness or injury prevents you from working.
- Reduce your consumer debts: A financial emergency, such as job loss, could make you unable to pay back your credit cards. You could reduce the amount of credit card debt you carry before experiencing an emergency.
- Know what your financial advantages are beforehand: There are certain advantages that may apply to your situation. For instance, you could qualify for much lower federal student loan payments after a job loss by enrolling in an income-driven repayment plan. The money saved by lower payments could be spent elsewhere. This is only one example of an advantage you may be able to utilize.
Can I Resolve a Financial Emergency by Filing for Bankruptcy?
There are also mistakes that you could make during a financial emergency. Cashing out a retirement account to cover medical bills or other very large expenses is one such mistake. You should speak with a bankruptcy attorney to discover additional debt relief options. Bankruptcy protections could protect your most important assets from creditors. Medical bills are also an example of a type of debt that is dischargeable in bankruptcy. Most retirement accounts are exempt from the bankruptcy estate.
You can speak to Lewisville bankruptcy attorney David Shuster to explore effective options for debt relief.