When an unexpected bill arrives, many people ask themselves the same question: do I use my savings to get out of debt or do I keep saving money “just in case”? Doubt has become more common among families in the United States, especially now that inflation continues to hit the pocketbook and credit cards seem to become an extension of the salary. The problem is that paying everything you owe can leave you without protection in any emergency, but saving too much while interest increases is not always the best decision.

Currently, millions of Americans are facing severe financial pressure from rising prices for food, gas, rent and other basic expenses. These circumstances have forced many people to rely more on credit cards to make ends meet. And there appears another problem: interest rates are at high levels, which makes debts grow faster.

According to a recent study from Achieve, many people report financial stress related to their monthly payments and the money they owe. In this situation, some choose to use every available dollar to pay off their debts as soon as possible. However, financial experts warn that running out of savings completely can be risky.

Think about it like this: Imagine you manage to pay off a credit card, but a week later your car breaks down or you need to go to the doctor. If you don't have money saved, you'll probably end up using the card again and go back to the same cycle of debt.

So how much money should you have saved? The most well-known financial advice says that people should save three to six months of living expenses in an emergency fund. That includes rent, food, utilities and transportation. But that recommendation usually applies to those who don't have high-interest debt.

For people who are currently paying off credit cards or other expensive loans, many specialists consider it more realistic to start with a small fund, between $1,000 and $2,500.

This money works as the “cushion” that would allow you to face common and unexpected expenses, such as those mentioned above (a flat tire or medical care). This way you can resolve the emergency without completely stopping your strategy to pay debts.

Once you reduce or eliminate your most expensive debts, the money you previously used for those payments can go toward building a stronger emergency fund.

Now, not all people need exactly the same amount of savings. If you're self-employed, make deliveries, drive for applications, or your income changes each month, you probably need to put more money away before aggressively focusing on paying off debt.

The same goes if you own your home, since a simple plumbing or air conditioning repair can cost thousands of dollars. In those cases, a $1,000 fund could quickly fall short. On the other hand, someone with a stable job, a fixed income and few family expenses could better manage a smaller fund while paying off their cards.

It is also essential to consider the type of debt. I'll tell you this: credit cards tend to have much higher interest rates, so it's generally a good idea to attack them first. On the other hand, some federal student loans or auto financing have lower rates and allow you to move forward more slowly.

On the other hand, if minimum payments eat up a large portion of your salary and there is hardly any money left for food or savings, it may be time to explore financial relief options.

An alternative is to consolidate debts through a loan or balance transfer card. This can lower your interest rate and make monthly payments easier. There are also debt management plans offered by certified credit counseling agencies.

In more complicated cases, some people negotiate directly with creditors to reduce the total amount they must pay. Even bankruptcy can be considered in extreme situations, although that decision should be carefully analyzed for its impact on credit history.

Each financial and debt circumstance is different, no matter how much they are similar to each other. It is advisable to approach a financial or credit advisor to find out the alternatives that best suit your income and objectives. However, the tips discussed here can be a good starting point if you didn't know what to do with your savings.

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