Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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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
- How to build your fund in 6 steps
- How much to save for emergencies
- How to build your fund with student loans
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.
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?|
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)|
|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.
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.
Interested in refinancing student loans?Here are the top 9 lenders of 2021!
|Lender||Variable APR||Eligible Degrees|
|1.88% – 6.15%1||Undergrad & Graduate|
|1.88% – 5.64%2||Undergrad & Graduate|
|2.50% – 6.85%3||Undergrad & Graduate|
|1.89% – 5.90%4||Undergrad & Graduate|
|2.25% – 6.39%5||Undergrad & Graduate|
|1.88% – 5.64%6||Undergrad & Graduate|
|1.90% – 5.25%7||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|2.13% – 5.25%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
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, 2021.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Interest Rate Disclosure
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.59% APR to 5.79% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.88% APR to 5.64% APR (excludes 0.25% Auto Pay discount). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 36% (the maximum allowable for these loans). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 2.04% and 5.8% to the one month LIBOR. Earnest rate ranges are current as of 6/8/2021, and are subject to change based on market conditions.
Auto Pay Discount Disclosure
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
Student Loan Refinancing Loan Cost Examples
These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042.39. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,249.77. Your actual repayment terms may vary.Terms and Conditions apply. Visit https://www.earnest. com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit earnest.com/licenses for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License.
One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America.
© 2021 Earnest LLC. All rights reserved.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 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.
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.
5 Important Disclosures for SoFi.
Fixed rates from 2.74% APR to 6.74% APR (with autopay). Variable rates from 2.25% APR to 6.39% APR (with autopay). All variable rates are based on the 1-month LIBOR and may increase after consummation if LIBOR increases; see more at SoFi.com/legal/#1. If approved for a loan your rate will depend on a variety of factors such as your credit profile, your application and your selected loan terms. Your rate will be within the ranges of rates listed above. Lowest rates reserved for the most creditworthy borrowers. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license #6054612; NMLS #1121636 (www.nmlsconsumeraccess.org). Additional terms and conditions apply; see SoFi.com/eligibility for details. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
6 Important Disclosures for Navient.
7 Important Disclosures for LendKey.
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 04/07/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
8 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.89%-4.78% APR and Variable Rates range from 2.13%-5.25% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.