Threading the needle: How Americans balance building emergency savings while paying down debt
- A big chunk of growing credit card debt is eating into consumers’ savings funds.
- While consumers are aware of the need for emergency funds, they are also trying to simultaneously pay down debt to keep their credit in good shape.

Many Americans don't have the funds to tackle an emergency should one arise. The blame may lie on rising costs, changes in employment and income, and in some cases financial illiteracy. But building savings can become even more difficult when a big chunk of growing credit card debt is eating into consumers’ savings funds, according to a new report by Bankrate.

22% of US adults have no emergency savings at all, the second lowest percentage in 13 years of polling. Whereas, 36% have more credit card debt than emergency savings, the highest since 2011, according to the report
Although more than half of (56%) employed Americans contribute to their emergency savings accounts on a regular monthly basis, they are far off having an extra cushion to feel secure against financial hardships, without turning to a credit card or loan.
While consumers with higher incomes are more likely to contribute a bigger amount to their savings more frequently, building savings is a work in progress and can take longer than expected even if done consistently in normal circumstances. Gen Zers, of all other older generations, got minimal time to build up their emergency savings just before the economic impact of the pandemic and inflation settled in. Almost 31% of Gen Zers do not have emergency savings — more than twice as many as the 15% of Baby Boomers who lack emergency funds.
Pay debts first or save?
When faced with an unexpected emergency expense, using a credit card as a default payment method may mean falling prey to taking on additional debt and paying more in interest over time. This practice can also blemish credit scores and limit future access to credit in the future. Additionally, the ambition to set money aside consistently to build an emergency fund might take a back seat if a consumer is hamstrung by a large credit card bill.

43% of US adults who carry a monthly balance on their credit cards attribute it to emergency or unexpected expenses.
While consumers are aware that the sooner they strategize saving up their emergency funds, the better, they are also trying to simultaneously pay down debt to keep their credit in good shape. For Gen Zers, building emergency savings takes precedence over paying off debt, compared to Gen Xers who have a higher priority of clearing their dues than building their savings.
An ideal situation could be to strike a balance between the two, which is easier said than done. While some may work toward increasing their savings first, others may choose to pay off their highest-interest debt first, or the debts that negatively impact their credit scores. Although there is no one-size-fits-all solution when it comes to juggling debt repayment and saving money, consumers can opt for a route that works in their favor: contributes to strengthening their financial health that carries their long-term financial plans through.