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Nothing takes the stress out of financial situations like spare cash. But it can also save you money. When you have cash on hand, you don't have to use more expensive options like high-APR credit cards, short-term loans and payday loans for emergencies.

If you're hit with an unexpected $500 car repair, you're covered. If you put that $500 on a credit card with a 15.99 percent APR and take a year to pay it off, it will cost you about $580.

With a payday lender, the interest rate will average 15 percent for two weeks, which works out to 400 percent annually, says Keith Ernst, director of research for the Center for Responsible Lending in Durham, N.C. At that rate, a $500 emergency could cost much more.

Having money set aside can be your answer to unexpected bills, says Dave Jones, president of the Fairfax, Va.-based Association of Independent Consumer Credit Counseling Agencies. Says Jones: "Having that emergency fund there is such a comfort."


 

 

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