- In this report
- Overview
- Clean up your credit score
- Keep your score blemish free
- Build a cash cushion
- Pay off your credit cards
- Rethink how you use credit
- Don't tap your home equity
- Make a bigger down payment
- Cap your debt
- Try to bulletproof your job
- Also in This Issue
This article was featured in the July 2009 issue of Consumer Reports magazine.
Build a cash cushion
This article is the archived version of a report that appeared in July 2009 Consumer Reports magazine.
Financial advisers have often recommended keeping three to six months of living expenses in an emergency fund. And some suggested funding that with a $50,000 home equity line of credit. Now, with HELOCs vanishing and unemployment climbing, you'll need to have a larger emergency fund of six to 12 months of expenses to be safe. Don't include your 401(k) balance or stock portfolio in that amount. Your emergency fund should be liquid—CDs, Treasury securities, and savings and money market accounts.
Also try to anticipate your cash needs for the next few years. Will you buy a new car or spend for a child's wedding? Avoid putting money that you might need within five years into stock investments.
If you have no emergency fund, build it up to three months of living expenses before you worry about paying down your debts beyond the minimums required. Once you have that much set aside, accelerate your credit-card payments to pay down your debt.
