Cutting Spending to Create an Emergency Stash
A: Your notion of building savings by accumulating debt is so seriously flawed, I cannot even tell you! When has robbing Peter to pay Paul ever worked? The way to build your savings is by spending less each month. Your goal should be to pay off your credit card bills in full at the end of each month and set aside money toward your emergency savings. See How to Build an Emergency Fund to learn how to create a risk-free safety net for your family.
It is too dangerous to rely on credit cards as a quasi-emergency fund, which seems to be what you are thinking, given that you have just two months of living expenses saved. In the past, lenders were all too happy to give people access to credit, and borrowers knew that in a pinch they could use their credit card to cover an unexpected expense. Or they could open a home equity line of credit (HELOC) and just tap some of the equity to cover an expense. But now the very same lenders are frantically reducing the credit they're offering. Credit card limits are being slashed—even if you have a sparkling score of 760+ and little or no card balance—and some accounts are being canceled. If all your money goes to paying off a credit card balance and you have no emergency fund, what will happen in an emergency? Where are you going to come up with the money to handle it all?
That's why everyone needs an emergency savings fund. Those carrying a credit card balance should scale back to making the minimum payment each month so they have more money to put into savings. Someone like you with no credit card debt must cut your spending so you can build an emergency stash that covers up to eight months of living expenses.
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Suze Orman's most recent book is her 2009 Action Plan: Keeping Your Money Safe & Sound (Spiegel & Grau).