It is possible to boost your emergency fund even while you are in the midst of a debt relief program. You just have to find the self-control and discipline to make it work. Admittedly, it will be hard. At this point, your priority is to get out of debt. As much as possible, you should exhaust all your extra money towards your debt payments.
However, building your fund for emergencies is one of the key ingredients that will make debt relief successful. Despite the presence of debt, this fund can make your personal finances more secure. After all, life still happens while you are consolidating your debts. Unfortunately, it will not exempt you from emergency situations. You are still vulnerable to bad events and that can cost you money.
The only way to keep these unexpected events from ruining your life is to boost your emergency fund. Of course, that is easier said than done. Admittedly, it will be hard for you to build this up without compromising your debt payments. But it is possible. You just have to be committed to saving up for it.
How to boost emergency fund in the midst of debt relief
If you want to build enough emergency savings while you are paying off debt, you need the develop a couple of habits first. These financial habits can make debt consolidation easier and at the same time, help you save money to give your emergency fund a boost.
The question is, how can you accomplish this task? The answer is simple – start small. Some people do not bother saving because they can only afford to save a small amount. You need to understand that saving, no matter how big or small, is still helpful. That small amount will grow as long as you are consistent about it.
Here are some tips that you can use to make saving money possible despite your monthly debt payments.
Make sure consolidation leads to a lower monthly payment
First of all, you need to make sure that debt consolidation can help you save money on your monthly payments. Although this will not reduce your principal balance, it can save you money in the long run. At least, if you know what you are doing. For instance, you can lower the monthly payment by negotiating for a lower rate with your creditors. Or, you can use a loan with a much lower interest rate than the average of your credit card accounts. Whatever money you can save on the monthly payments can be used to contribute towards your emergency fund.
Live off a frugal budget
Using a frugal budget to save money is one of the best ways to save up for an emergency fund. And it is very effective. There are many stories of debt success on the Internet that will prove that this is true. Take for example the story of Sue, a debt-ridden woman in her mid-50s. She decided to take her debt payments seriously by refinancing her debts and living a frugal life. One of the things that she did was to limit herself to a $3 food budget every day. It was challenging but soon, she enjoyed being creative with feeding herself. Soon, she found herself free from debt and ready for retirement.
This is also something that you can apply in your life. Live a frugal life – even if it is only temporary. Use the money you will save to boost your emergency fund. Once you have enough, you can go back to your original budget. By that time, you may well be on your way towards debt freedom – and that would give you more breathing space in your finances.
Increase your income
Finally, saving up for an emergency fund will be easier if you increase your income. You do not have to get a second job to do this. You can look around your house to see what you can sell. Or you can set up a passive income by renting out possessions or an extra room in your house. You even have the option to take extra hours at work – if that is something that your employer will allow. These will increase your monthly income. Anything that you earn should be put towards your emergency savings.
Even after you have saved enough emergency funds, you can still continue earning more. But what you earn should be put to use productively in improving your financial position. You can use it to invest or save up for another financial goal. The more savings and investments, the more secure your financial future can be.
Emergency funds can help your consolidation efforts
If you think that putting even a small amount on your emergency fund is a waste of what could have been a debt payment, you are mistaken. Having this fund can be beneficial – especially if you are in the midst of a debt relief program.
There are two reasons why you need to have an emergency fund while paying off debt.
It protects your debt payments
The first reason is for protection. You will not be exempt from emergency situations just because your finances are tight. It will not be compromised when something unexpected happens that requires an unplanned expense. If someone in your family requires immediate medical attention, you will not hesitate to stop paying your debts. This is especially true if it will give you the finances to pay for medical relief.
If you have an emergency fund in the first place, you should not have to choose. This is why you need to save up for it. That way, you have the extra money to pay for emergencies and your debt payments will remain untouched.
It helps you focus on your goals
Reports reveal that Americans are feeling more stressed about money – more than what they felt in the past. This is despite the fact that the economy is doing really well.
If you are feeling stressed about your money despite the positive economic situation around you, that can be a huge distraction. It will be hard to focus on goals that can improve your current living conditions.
With the presence of an emergency fund, you do not have to worry about the stress. Since payments are secure, you can focus on earning money to increase your debt payments. You do not have to worry about where you will get your money or if something will compromise your payments. You know that you have something set aside to pay for that. There is no need to feel the anxiety that can confuse you and keep you from thinking straight. When you are thinking straight, you can come up with ways to increase your income. You have more focus on improving your finances as you pay off your debts.