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No emergency savings = high credit card debt

Although some Tennessee residents use their credit cards wisely, many tend to splurge on daily expenses. Then, when the bill comes, they can barely make the minimum payment. This leads to a vicious cycle of high credit card debt. Compounding this situation is the occasional emergency - the car breaks down, the dog has to go to the vet or a personal item is stolen and has to be replaced. Because these consumers lack the savings to pay these unexpected bills, they use their credit cards.

Just over half of all Americans have more emergency savings than debt - the lowest number since 2011. Almost 30 percent of consumers have more debt than savings, while 17 percent say they have neither. This is causing those short on funds to turn to credit cards in an emergency situation, which carries some risks.

For example, many credit cards have high interest rates - some 20 percent or higher. Plus, a credit card company can cut the limit at any time, especially if the balance continues to grow while the consumer is paying only the minimum payments. With emergency savings, the money belongs to the consumer, free and clear.

The good news is that consumers understand the importance of having a savings fund. It's just that they lack the money to put into one. Prices keep rising, while salaries are staying stagnant. In addition, the unemployment rate is still high.

When debt gets out of control, filing for bankruptcy is an option. This can help protect consumers from creditor harassment and wipe out debt. It's a good way to start with a clean slate, but it can tarnish one's credit score for many years. It's a good idea to seek out all available options first.

Source: Deseret News, "Is credit card debt the new emergency fund?," Michael De Groote, Feb. 28, 2014

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