A new study released Wednesday reports that a majority of Americans say they will have a hard time paying $1,000 in emergency expenses, with a record share saying they will have to turn to credit cards to cover the cost.
Only 4 in 10 Americans said they could cover an emergency of $1,000 or more using money from their savings account, The New Bank. survey have found. Although this is the same percentage of Americans who have found themselves in this financial situation last yearAbout 25% of Americans surveyed said they would need to cover an unexpected $1,000 expense with a credit card, the highest percentage on record, Bankrate said.
“With 1 in 4 Americans telling us they will react to a major emergency expense using a credit card, their timing couldn’t be worse,” Mark Hamrick, Bankrate’s chief economic analyst, said in a statement.
That’s because credit card rates jumped after the Federal Reserve Series raise interest rates over the past year, which is designed to battle the highest inflation in four decades. At the same time, nearly 7 in 10 Americans told Bankrate they save less because of inflation, putting more families in a precarious financial position just as the US economy heads toward a possible recession.
Hamrick said that relying on credit cards for emergency expenses could cause a deeper financial hole given the recent surge in credit card rates. The average interest rate on a new credit card is now 21.4%, while the average interest rate for existing cards is 19%, according to WalletHub. These numbers compare to 16.6% and 13.4%, respectively, in 2011.
“On average, credit card interest rates are the highest we’ve seen and are set to rise as the Fed continues to rise,” Hamrick said. “In the best of circumstances, this debt should be paid off before exorbitant interest charges hit the account.”
Adults ages 18 to 26 as well as Americans earning less than $50,000 said it would be more difficult for them to pay $1,000 for emergencies than older, higher-income respondents, according to the survey of more than 1,000 people in the US. mid December.
Personal finance experts usually recommend that people have at least three months of income saved to get over them in the event of a job loss, health problem, or other unplanned situation that impairs their cash flow.
The Bankrate survey found that rising interest rates, rising prices due to inflation, and job losses are the three main reasons people say they can’t save $1,000.
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