How to Build an Emergency Fund With (or Without) Student Loans to Repay

 June 30, 2021
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Setting aside three to six months of savings can protect you from having to borrow money if an unforeseen accident, job loss or other event sets you back financially. But figuring out how to build an emergency fund is a challenge.

Through budgeting, goal-setting and other easy-to-take steps, however, you can ensure you have the rainy day savings you might need down the road. This approach can also help you build an emergency fund with student loans still left to repay.

Here’s what you need to know to build your emergency fund.

Why you need an emergency fund

In short, an emergency fund won’t only save your budget, it will give you some peace of mind (which is every bit as valuable).

An emergency fund is not something you tap into when you need to pay occasional bills like vacations, holidays, your annual car registration or your dental cleaning every six months. These things may not be regular expenses, but they’re still expenses you can anticipate, and you should be accounting for these in your monthly budget.

If you know what your annual trip to Las Vegas will cost, divide that number by 12 to get the amount you need to set aside monthly for this goal. Put that into an “irregular expenses” savings account.

Your emergency fund is for true emergencies — unforeseen scenarios you couldn’t anticipate, such as a sudden job loss or huge health crisis.

An emergency fund can be a lifesaver in these situations. If you get sick, get laid off or face a sudden car or home repair bill, this safety net will become your saving grace.

Murphy’s Law isn’t just a pessimistic proverb; life has a way of throwing unexpected costs at us from time to time. If your car’s engine dies two weeks after you get laid off, you’ll thank your lucky stars that you saved up for this type of calamity.

How to build an emergency fund in 6 steps

Whether you’re looking to build a college emergency fund or a larger fund for your growing family, the principles remain the same.

1. Start/fine-tune budget

Tracking your cash flow is key to building your emergency fund. Choose a budgeting method and then comb through your expenses and income to determine your monthly contribution amount to an emergency fund.
2. Set a realistic goal

Once you know how much you can reasonably afford to contribute to your emergency savings each month, determine how many months you’ll need to make that contribution to fund your account fully.

Read on to learn how much cash should be in your fund.

3. Choose a savings account

Store your growing fund in a bank, credit union or online savings account that allows you to earn interest and access funds without fees or penalties for withdrawals.
4. Automate your savings

If your employer allows it, set up a direct deposit from your paycheck. Or if you’re self-employed, set up a recurring transfer from one account to another. This “set it and forget it” approach can be hugely helpful, but ensure you have the cash flow to avoid overdraft fees.

You could also start using “keep the change” mobile apps like Digit that round up change from your purchases and move it into your savings account automatically.

5. Monitor your progress

You might decide to increase your monthly contribution if you receive a raise. You might also toss a lump sum into the fund, perhaps thanks to a tax refund or other financial windfall, to reach your savings goal faster.

Also, revisit your budget routinely to confirm your allocations are affordable and necessary.

6. Set a new savings goal

Once your emergency fund is funded fully, take a broader look at your personal finances to decide where you should redirect the monthly contribution that could now be used elsewhere. You could decide to amp up your savings in the stock market, for example, yielding a whole new question: Should you pay off student loans or invest?

How much to save in your emergency fund

Personal finance experts recommend different amounts. TV personality Suze Orman, for example, recommends saving up enough money to cover eight months‘ worth of expenses. Bestselling authors Dave Ramsey and Jean Chatzky both recommend three to six months.

Many financial experts shoot somewhere in the middle, saying you should err as close to the six-month side of that spectrum as possible.

Whatever number you choose to strive for, it’s worth noting that experts disagree over whether your calculations should cover all of your expenses during those months or just your “necessary” expenses.

Are you talking three to six months of dining at posh restaurants and going to the movies — or three to six months of strictly paying for groceries, utilities and other non-luxury items? Is cable TV included? What about your gym membership?

The answers to these questions are up to you. If the worst happens and you lose your job, you may choose to cut back drastically on nonessentials to make your money stretch as long as possible.

Or you may save up a little more now to give yourself more breathing room and allow yourself to indulge (in moderation) during times of crisis. Decide on your personal must-haves and plan accordingly.

Where to store your emergency fund

It’s wise to sock away your rainy day funds in an accessible yet interest-bearing account. A high-yield savings account is your best bet. It allows you to make withdrawals as needed (and without fees or penalties) while also accruing interest onto your balance over time if it goes untouched.

How to build an emergency fund: How long will it take to save?
Savings goal Monthly contribution Time to funding (months)
$15,000 $300 50
Savings goal ÷ monthly contribution = months to save

Keep in mind that when it comes to establishing financial security, more money is always better than less. With that said, it’s possible to have too much in your emergency fund, if some of that savings could be earning more interest if it’s invested.

How to build an emergency fund with student loans

There are debt-related questions we haven’t yet answered: How do you juggle building an emergency fund with student loans? Should you pay off student loans or save? Fortunately, these financial goals aren’t necessarily mutually exclusive.

First and foremost, you must make the minimum payment on your loans. Never skip payments (but that should go without saying). Or consider repayment strategies to lower your payments, if necessary.

But how should you balance building an emergency fund with making additional loan payments to accelerate your payoff? Consider these strategies:

Start with a small emergency fund Going back to the gurus, Dave Ramsey recommends saving $1,000 in an emergency fund first, then focusing on repaying your debt, and then building your emergency fund more to cover three to six months of expenses. It’s a back-and-forth strategy that balances both priorities.
Prioritize a larger emergency fund Other experts argue you should save a bigger emergency fund right off the bat — maybe two months’ worth of expenses to start — then make additional payments on your loans. Once your loans are repaid, build your emergency fund to the six-month mark.

The interest rate on your loans will play a role in your personal decision. Paying down subsidized federal loans is different from repaying private loans with 10.00% APR. If you’re paying a large amount in interest each month, you may choose to start with a smaller emergency fund so that you can focus on getting rid of high-interest debt; you might even adopt the debt avalanche method.

Whatever you decide, one thing is clear: an emergency fund should definitely be part of your short-term and long-term financial plan. It’s one of the most important ways to save money while paying off student loans.

Andrew Pentis contributed to this report.

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2.24% – 9.23%8Undergrad
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1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of June 1, 2022.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of April 29, 2021. Information and rates are subject to change without notice.
 


3 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.


4 Important Disclosures for Navient.

Navient Disclosures

You can choose between fixed and variable rates. Fixed interest rates are 2.99% – 8.24% APR (2.74% – 7.99% APR with Auto Pay discount). Starting variable interest rates are 1.99% APR to 8.24% APR (1.74% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.


5 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.


6 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.24% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. Let us know if you have any questions and feel free to reach out directly to our team.


7 Important Disclosures for Purefy.

Purefy Disclosures

Purefy Student Loan Refinancing Rate and Terms Disclosure: Annual Percentage Rates (APR) ranges and examples are based on information provided to Purefy by lenders participating in Purefy’s rate comparison platform. For student loan refinancing, the participating lenders offer fixed rates ranging from 2.73% – 7.99% APR, and variable rates ranging from 1.74% – 7.99% APR. The maximum variable rate is 25.00%. Your interest rate will be based on the lender’s requirements. In most cases, lenders determine the interest rates based on your credit score, degree type and other credit and financial criteria. Only borrowers with excellent credit and meeting other lender criteria will qualify for the lowest rate available. Rates and terms are subject to change at any time without notice. Terms and conditions apply.  


8 Important Disclosures for Citizens.

CitizensBank Disclosures

Education Refinance Loan Rate Disclosure: Variable interest rates range from 2.24%-9.23% (2.24%-9.23% APR). Fixed interest rates range from 4.29%-9.73% (4.29%-9.73% APR). 

Undergraduate Rate Disclosure: Variable interest rates range from 5.37%- 8.81% (5.37% – 8.81% APR). Fixed interest rates range from 5.87% – 9.31% (5.87% – 9.31% APR).

Graduate Rate Disclosure: Variable interest rates range from 2.24% – 8.75% (2.24% – 8.75% APR). Fixed interest rates range from 4.29% – 9.25% (4.29% – 9.25% APR).

Education Refinance Loan for Parents Rate Disclosure: Variable interest rates range from 2.24%- 8.40% (2.24%- 8.40% APR). Fixed interest rates range from 4.29% – 8.90% (4.29% – 8.90% APR). 

Medical Residency Refinance Loan Rate Disclosure: Variable interest rates range from 2.24% – 8.75% (2.24% – 8.75% APR). Fixed interest rates range from 4.29% – 9.25% (4.29% – 9.25% APR).