Tuesday, June 10, 2014

What an Emergency Fund Can do for Your Car Loans and Credit Card Debts

Emergency fund
Your current earning may be good enough for you to qualify for a car loan or get your credit cards. However, it is not good enough when you are unemployed. You need an emergency fund.      

Do you know in most cases people have declared bankrupts because they are out of a job?  See the comments in this article: Credit Card and Bankruptcy in Malaysia. Unemployment may be an issue; the most important thing is that there is no emergency fund to cushion the blow. When it happens, the credit card debt is allowed to snowball and facilitated the bank to institute bankruptcy proceedings against defaulters.  With an emergency fund, you can carry on living normally and pay your credit card bills promptly to avoid interest and late payment charges. Start using your credit card only when you have sufficient emergency funds to cover three to six months of living expenses.

Car loan
 A car loan is quite a substantial amount. The fact is that the car does not belong to you, you are the hirer and the bank is the owner. When you default on installment payments, the bank will repossess your car. Most likely than not, the current car value which has been depreciated over time is insufficient to cover the amount you owe the bank.    The bank will go after you for the difference. When you are unemployed, you have no funds to top up the amount. The outstanding amount together with compound interest will accumulate into a sum like RM30,000 in Malaysia to declare you bankrupt. An emergency fund will help you avoid such a situation.  

 Do you have an emergency fund? It is good to cover life’s unexpected expenditures such as sudden medical expenses but more importantly, avoid being declared bankrupt.            
Source: What an Emergency Fund Can do for Your Car Loans and Credit Card Debts

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