Save for an Emergency Fund or Pay Off Debt: Which Should You Prioritize?

Debt can be so dangerous, but having an emergency fund to protect yourself is crucial. How do you decide between the two? While we’d love to give you a straightforward answer, the truth is that it depends on many different factors. But don’t worry - we simplify how to think through each type of debt, and the top things to think about when weighing these two options.
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[@Ben-yw8be]

I do both. I just adjust how much I put for emergencies and paying off debt.

[@JosephDickson]

Even when paying off debt I placed a small amount towards my emergency fund. Like a 9 to 1 ratio. That emergency fund will keep you out of accumulating debt while trying to pay it off.

[@jameslufkin1190]

I can relate to this. Like the guys say, it's never a linear journey, having just a little extra can keep you out of the ditch

[@kristinaerickson2353]

That's what I'm doing. Most of my extra goes to Debt. But, 10% goes to emergency fund. I dont want another unexpected item to derail my progress.

[@TheFirstRealChewy]

If you can pay the expense with a credit card, then focus the money towards paying off the credit card. There is no reason to keep paying interest on the credit card while holding money in a bank account for expenses you can pay using that same credit card. If something comes up then you just charge the credit card, unless it's an expense like paying your mortgage which you can't charge to a credit card. Just think about it. In an emergency you'd use your emergency fund, if that's exhausted or nearing exhaustion you'd switch to your credit card for expenses you can charge to rhe card. So when paying off debt and building the emergency fund you do the reverse.

[@Executor009]

Pro tip: if you are already in an unhealthy amount of debt just use the debt snowball, because if you really were able to do the avalanche you wouldnt be in this position to begin with.

[@sandrasmith6207]

You must do both

[@ahumm8280]

This must be a cut of an old vid. CC rates are rediculously over 20%!

[@TheFirstRealChewy]

Save for emergency expenses that can't be charged to a credit card, then focus on paying off the credit card, then save for the emergency expenses that can be charged to a credit card. For example, don't carry a credit card balance while saving an emergency fund for 3 months of groceries. You can always buy groceries using a credit card.

[@theduke7616]

I agree. The purpose of the emergency fund is to avoid credit card debt. If you choose to sit on a pile of cash ("emergency fund") when you already have credit card debt, you are defeating the purpose. The emergency fund is increasing your level of credit card debt instead of reducing it. It's like having your house on fire and not wanting to use available water to put it out because of the possibility of having a second fire sometime in the future. It makes no sense. Common sense says to put out the existing fire right now and then work towards obtaining more water to avoid a possible second fire.

[@Microbomber]

I am on step 3 of the FOO, is it okay to save up money like step 1 until you can pay a credit card in full?

[@agnesbunnie]

Any ideas for a sound effect for waving the FOO? The thwap sounds disrespectful

[@Glanzern]

Why does he spell job?

[@me0101001000]

I tackle debt before anything. I don't care if it's consumer debt or a mortgage. Debt is debt to me.

[@TheFirstRealChewy]

I use to think like this until I processed things in reverse. If you have 2 years to live, would it be better to have $300K in investments and owe $300K on your house, or $0 in investments and a paid off house?

[@anniealexander9616]

Get a 0% credit card for an emergency. Pay off debt as fast as you can.

[@Captaine_Crunche]

interesting take, i kind of agree

[@CK-mx7rc]

Not that easy for people to get approved for a 0% credit card this day and age

[@CK-mx7rc]

Not to mention that 0% card will more than likely incur interest rates after a certain period of time if not paid

[@anniealexander9616]

@@CK-mx7rc I've never paid a penny in interest. I pay my cards off weekly. I've put things as big as a new roof on a card. Took me 4 months to pay off 10k.

[@anniealexander9616]

I've never paid a penny in credit card interest. I pay off my cards weekly. I've even put a $10k roof on a home with a card. I paid it off in 4 months.