Emergency fund question

ArtyJ931

I’m just starting to build up an emergency fund after starting on the DMP route and whilst waiting for defaults. Two questions

Should I concentrate on building up an emergency fund before I start saving towards settlements? Or is it better to do both simultaneously?

Is it worth saving up to pay off eg Barclaycard or FD cc initially so I have one less creditor on my case or will that cause problems ?

actually 3 questions - what is a wise amount for an emergency fund? I’ve taken a total stab in the dark but not sure what to aim for

thankyou

MattMattMattUK

There is no difference between an emergency fund and saving for settlement, you should be putting everything you can into savings, no non-essential spending at all.

In regard to paying off one debt and nothing others that is not a good idea. Let them default, follow the process properly.

The third question is essentially the same as the first, save every penny you can, no non-essentiel spending, everything other than core living expenses should be going into savings at the moment.

ArtyJ931

https://forums.moneysavingexpert.com/discussion/comment/81942561#Comment_81942561

ah ok. I’ve been splitting things into pots to help me budget. And have started a settlement and an emergency pot. Should I combine those then?

Emmia

https://forums.moneysavingexpert.com/discussion/comment/81942568#Comment_81942568

I don't think it matters if there are two pots or one - you just take the money out to settle or use in an emergency as you need to.

If you'd find it easier to have a single pot for these purposes, combine them.

Dakota_Rose

Different people would recommend different amounts for an emergency fund. It’s essentially the amount you would need to stop you turning to borrowing in an emergency. A good starting amount would be £1000, in case of a boiler repair or essential appliance replacement.

Personally, I’ve prioritised a £1000 EF that I’m determined not to touch for anything else other than an emergency.

Your approach of setting up sinking funds to cover future expenses is sensible. This will stop you turning to credit again.

Others will be better placed than me to advise on DMP approach, but I believe allowing all to default and saving everything you can in the meantime is the usual advice.

Rob5342

Emergencies should be your number one priority as something will crop up at some point and you'll need money to cover it. They can be one pot rather than separate ones but only ever spend money on a settlement if you will have enough to cover emergencies left over.

Start off with a dmp that covers everything, and then see how your saving goes. When you have enough of an excess saved then you can think about settling some of your debts. It's really up to you how you play that. For larger debts you really want to play the long game to get the best discount you can, for smaller debts you might just want to clear then to tidy things up.

MattMattMattUK

Looking through your SOA with some trimming you should be able to put £800 a month into your emergency fund, that means by the time the lenders have all defaulted you should be looking at £2,000-3000 even if you are starting from zero. That is important as others have said that is enough go cover you for a boiler repair, car maintenance, insurance excess if you need to make a claim etc. and even more than one of those happening at once (as they frustratingly often seem to do).

sourcrates

Best to keep things as simple as possible, your aim is to be able to cover the cost of say car repairs, or any white goods should they need replacement.

Ideally you want to be paying the absolute minimum to your debts once payments resume, and maximising what you save, so that when settlement offers do come around, you can make the best use of them.

The idea is to repay as little as possible overall, keeping in mind that debt buyers pay on average 12% of the face value of defaulted debts.

RAS

Your priority is an emergency fund. How much you need depends on your situation.

Do you have a mortgage to cover, a secure job, good workplace health cover, the statutory minimum or are you self employed?

If you rent is that secure, social rent, or do you need to cover a new deposit and first month's rent before getting your old deposit back, and moving costs?

If you have a mortgage, you need funds for things like gutters, boiler maintenance as well as white goods. If you've got a car, you may need to think about replacement as well as repairs?

SPM87

https://forums.moneysavingexpert.com/discussion/comment/81942793#Comment_81942793

it is refreshing to see this, I absolutely feel sick to my stomach when I read someone paying so much a month to defaulted debt and so easily sending it without question too

ArtyJ931

I have a 16yo Renault with 120,000 miles on the clock due an MOT shortly so sooner or later it will need replacing.

I have a mortgage and currently live in fear of major repairs so I’ll be building the EF as quickly as I can.