QUESTION: How to build a financial cushion when you have debts?

Building an emergency fund while dealing with debt requires a balanced and strategic approach. A complete lack of savings makes a person vulnerable to any unforeseen circumstances, whether it is a car breakdown or job loss, which inevitably leads to new borrowing. Therefore, at the initial stage, it is recommended to form a small basic reserve covering the family's expenses for just two to four weeks. Such money is kept in an easily accessible account and serves as protection against force majeure events.

As you reduce the volume of your most expensive loans, this minimum reserve should be gradually increased to one to three months of habitual expenses. The accumulation process in this case goes hand in hand with debt repayment, creating a solid foundation for further financial stability.

It is important to understand that forming a safety cushion reduces stress levels and prevents the risk of falling into an even deeper debt trap in crisis situations. In practice, this looks as follows: you annually set aside a small percentage of your current income to replenish the reserve fund, even if you are simultaneously paying off credit obligations. This approach forms a useful financial habit and protects you from the need to turn to microfinance organizations again or take out expensive consumer loans at the very first sign of trouble.