Faced with a $1,000 emergency, most Americans say they don’t have the money

Faced with a $1,000 emergency, most Americans say they don’t have the money

  • Finance
  • January 25, 2023
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A majority of Americans say they would struggle to pay for a $1,000 emergency expense, with a record proportion saying they would have to turn to credit cards to cover the expense, according to a new study released Wednesday cover.

Just 4 in 10 Americans said they could cover an emergency of $1,000 or more with funds from their savings account, the new Bankrate poll found. Although this is about the same proportion of Americans who found themselves in this financial situation last year, about 25% of Americans surveyed said they had to use a credit card to cover an unexpected $1,000 in expenses, the highest percentage ever , according to Bankrate.

“With 1 in 4 Americans telling us they would respond to a major emergency issue with a credit card, their timing couldn’t be worse,” Bankrate senior economic analyst Mark Hamrick said in a statement.

That’s because credit card rates have soared after a series of rate hikes by the Federal Reserve last year aimed at tackling the highest inflation in four decades. At the same time, nearly 7 in 10 Americans told Bankrate they’re saving less because of inflation, putting more households in dire financial straits as the US economy heads for a possible recession.

Relying on credit cards to meet emergency expenses could be causing a deeper financial hole given the recent rise in credit card fees, Hamrick said. The average interest rate on a new credit card is now 21.4%, while existing cards have an average interest rate of 19%, according to WalletHub. These figures compare to 16.6% and 13.4% in 2011, respectively.

“On average, credit card interest rates are the highest we’ve seen, and they’re expected to rise as the Federal Reserve continues to hike,” Hamrick said. “Under the best of circumstances, this debt should be paid off before costly interest charges hit the account.”

Adults ages 18 to 26 and Americans earning less than $50,000 said they would find it more difficult to raise $1,000 for an emergency compared to older and higher-earning respondents, according to the survey more than 1,000 people were surveyed in mid-December.

US families struggle with rising inflation and gas prices 02:27

Personal finance experts typically recommend that people save at least three months of income to cover them in the event of a job loss, health issue, or other unplanned situation that affects their cash flow.

Rising interest rates, higher prices due to inflation, and job losses are the top three reasons people said they couldn’t save $1,000, the Bankrate survey found.

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Christopher J Brooks

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