Finding financial security while paying off a huge amount of debt seems impossible. This seems like something that the average American needs. According to reports, the average American consumer owes a lot of debt. The average mortgage is more than $200,000 and the non-mortgage debt per household is $24,706. That is a lot of debt for anyone to completely get out of.
When you have a lot of debts, it can somehow control how you live your life. Everything that you do will revolve around your credit obligations. Your career should allow you to earn enough to pay your debts – no matter how stressful it can be. Your preferred lifestyle is sacrificed because you need to make sure you have the money to meet several financial obligations.
The thing about paying off debt is that it does not happen overnight. You cannot get rid of it fast enough. But that does not mean we will not try to pay off debt early. It is possible to pay it off earlier than planned, but only if you approach it with a strategy in place.
One of the best ways to be successful at paying off debt is to be financially secure while you are doing it. At the very least, financial security will keep uncontrollable circumstances from compromising your efforts of achieving debt freedom.
Find financial security through an emergency fund
With all the debt that you owe right now, finding financial security may be a bit hard to do. Admittedly, your finances are restricted enough that you are left with limited choices. However, there is one thing that you can do to get a bit of security while you are paying off your debt. You can focus on building your emergency fund.
Unfortunately, 1 out of 5 Americans has admitted that they have more credit card debt than emergency funds. If you do not have a single cent save in an emergency fund, you are more in danger than you thought. The situation is even more dangerous if you are paying off debt. You need an emergency fund because of various reasons.
It keeps you from compromising your debt payments
All it takes to compromise your debt payments is one unexpected event. It could be a trip to the ER, a broken down car, or a very expensive treatment to deal with an ailment. Whatever it is, the money you will use to pay for these expenses can take your finances back – and compromise your debt payment. When you are faced with a stressful situation, you are most likely to use the money meant for your debts first. While it may seem necessary, it will make things worse for you. To avoid being put into this situation, you need to build your emergency fund. That way, you have the money set aside for unexpected expenses.
It helps you avoid borrowing more money
Another reason why an emergency fund is needed while paying off debt is that it can keep you from adding to your debt. Sometimes, when you are faced with unexpected expenses and you do not have the money to pay for it, you are forced to turn to debt for help. With the current debt that you are already paying, adding more will make it more difficult to achieve debt freedom. Not only that, it will make you feel discouraged since it seems like your debt is not being paid off. That discouragement might keep you from completing your debt relief efforts. But with an emergency fund, you do not need to borrow money. You can use the fund to pay for that unexpected need.
It lessens the feeling of financial stress
Finally, the financial security that an emergency fund provides can lower your stress level significantly. Knowing that you have a backup will help you focus on the task of getting out of debt. It is not just about having the finances to pay off your debt. Knowing that something can go wrong and you are prepared for it – that is what you can rely on to help you get out of a tight financial situation. Stress is something that you want to get rid of if you want to be able to deal with debt completely. Fortunately, the mere presence of an emergency fund can help get rid of this financial stress. It is not enough to make you completely secure, but it is enough to tide you over until you completely pay off your debts.
Tips to build your emergency fund while paying off debt
Now that you know why an emergency fund is necessary, you have another challenge before you. It is time for you to save enough emergency fund to achieve financial security. Ideally, your emergency fund should be equal to 3 to 6 months worth of expenses. According to reports, that means your emergency fund should be $28,656. But since you need your money to pay off debts, it will take forever to reach that amount. For now, a $1,000 emergency fund should be enough. Once you have paid off your debt, you can start increasing your emergency fund savings until you reach the ideal amount.
But how can you save money while paying off debt at the same time? Here are a couple of tips that you can use.
Know where you can save
If you pay attention to your expenses you will find a lot of areas where you can save. When you bundle services, that can help you save on your bills. If you choose to pay your debt every two weeks, that would mean an extra month of payments. Find areas where you can save and use the extra money to make your emergency fund grow. If you have to cut back on some expenses, you might want to do it – at least while you are still trying to save enough emergency fund.
Prioritize your high-interest rate debts
Paying off your high-interest rate debts is another way to save money. It might seem like the opposite but if you understand how interest rates work, you will realize that it has the potential to save money. The interest rate is eating up your extra money. You want to get rid of this debt first if you want to get your hands on more extra money.
Organize your debts
If you want to achieve financial security through an emergency fund and you need to do it fast, you should probably organize your debts. There is nothing like knowing your debt really well to gain enough confidence to pay it all off. One of the best ways to organize your debts is to categorize them by timeframe. This means figuring out how long it will take to pay them off. Consider the ones that will take the fastest to pay off completely. Apart from the high-interest rate debts, these should be another priority. Imagine completely paying off a couple of debts. You will be freeing more money then. You can use it to pay off the other debts and use some to increase your emergency fund as well. The greater the emergency fund, the more secure you will be.
Get your family involved
Paying off your debts and trying to achieve financial security at the same time is tough. This is why you have to get your family involved in it. At the very least, you want them to help you reach your saving goals. You want them to help you cut back on spending. By having them on board, you can all make the necessary sacrifices that will help you reach your goal. By working as a team, the burden of getting rid of debt while securing your finances should be easier to accomplish.