Without savings for emergency funds, a consumer who is facing a large bill for something, it usually means a downward spiral into bad credit zones. Perhaps potentially repossession of vehicles, loss of their home, and so on. Consumers will take drastic steps to survive and put food on the table. This can include not paying for utilities, rent or mortgage payments, and car payments, The net result is a poor credit rating which also usually means that they will be unable to borrow funds in the future. If they are successful at finding a lender who will loan them money, the interest rates will be much higher to cover the risk of not being paid.
It is far easier to do with less when you are working and build up an emergency fund to rely on during difficult times. Some people will ask how much should be set aside? Start by setting aside at least 10% of your income. More if you can afford it and save at least one year’s salary. The more the better. Some consumers have been out of work for several years and the majority have taken as long as 6 months to find a job. That is a long time with no income. Emergency savings that will hold you for at least a year will take a lot of the stress away and allow consumers in this situation to focus on finding a new job to replace the one that they lost.
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