Pay Off Debt or Build an Emergency Fund - Which is Better?
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- Опубликовано: 21 июл 2024
- n this episode, Doug and Maureen tackle a common financial question: should you build an emergency fund first or pay off debt? They explain why prioritizing an emergency fund can be important, even if you have debt. Learn how developing a savings habit can shield you from unexpected expenses and stop lenders from reducing your credit limit. They also discuss the risks of relying solely on debt for emergencies and how savings can keep you financially secure. Plus, they cover the benefits of paying off debt first, like saving on interest, boosting your credit score, and having the option to use credit for emergencies.
Time Stamps:
00:00 Introduction
01:50 What do you use your emergency fund for?
02:59 Reasons why an emergency fund is more important than paying down debt
06:40 The habit of savings
11:11 How much does your emergency fund need to be?
15:20 Where should you put your emergency savings?
23:11 Why should you pay off debt first before saving for an emergency fund
29:12 Final thoughts
Related Links:
Emergency Fund Critical For Single Parents - www.hoyes.com/blog/emergency-... - critical-for-single-parents/
Why You Need an Emergency Fund - www.hoyes.com/blog/why-you-ne...
Emergency Fund or Credit Card Debt? What’s the Better Choice? - www.hoyes.com/blog/emergency-...
Which Debts Should You Pay First? - www.hoyes.com/blog/which-debt...
Dr. Brad Klontz Financial Psychologist - www.bradklontz.com/
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Answer:Pay Off Your Debt
I do have an unused line of credit at my bank (not a secured one since I don't own a house), but I could always use that if absolutely necessary. Right now all my extra income is going towards paying off debt. By January I will be debt free and focused heavily on saving all that excess cash. I also have $500 in a separate account for a smallish emergency if needed without dipping into the credit.
I would like to share that some people think that traveling once a year is sometime we MUST do to have a normal life. I often choose not to travel, still I get pressure from some people who just don"t understand that choice. To put here my situation, I don"t have debts and one of the reasons, is that I don"t travel ! I live in a big city and there is a lot of things do enjoy localy.
And some of us value experiences and travel once in awhile. We also work on our financial well being. It is all about priorities.
The thing is this...looking at your credit card as a form of an emergency savings, or a place you can pull from in case of an emergency, is dangerous. The credit card company can decrease your credit line AT ANY TIME based on no fault of your own, ie the cc company's finances or the economy, then you may not have what you need for the emergency. To depend on a cc company when you have an emergency doesn't make sense, when you can put away liquid money that you can have access to and no one can just snatch it from you. BTW it IS possible to save $18k in 18-24 months for an average person with disciplined spending plans.
A few years ago I had $13,000 in my emergency fund making .025% interest and at the exact same time I had a $13,000 credit card balance that was costing me a $300 minimum monthly payment. It didn't make sense for me to keep paying that minimum monthly payment slowing down my ability to save. I used my emergency fund and paid off that credit card and set it aside as my emergency fund card and stopped paying them 25% interest. It didn't make sense to me to keep paying them hundreds of dollars a month for something that may or may not happen, but would rather pay myself that money to build my savings at a much faster pace. It worked out well and years later that card is still with me with a zero balance and the same credit limit.
Or you can have your money frozen like the Russian Central Bank has. In the name of national security, we are freezing your funds as Washington DC informed Quibec that you made an anti-Amercian comment about Macdonald's coffee.
I remember seing you in that "Till debt do us apart" TV show, like in two episodes. Great help you gave!
Debt pay off is a guranteed return at the interest rate.No debt including home.I do use cc but pay off balance each month.I dont save much cash.I do save in gold,silver,and platnium.If I have a emergency over 1k will sell some silver or gold.Happy investing/stacking
Fellow stacker, I like your thinking.
Save in cash for when the ATM's are unplugged. Save 1, 5, 10, 20 notes, which are easily tradable for goods. In the UK only 2.87% of 'money' is cash and coins the rest is banker-made credit on a magnet tape. Modern "Money" many times is an illusion.
It is not impossible to build an emergency fund greater than 18k. with 3k take-home pay, it will take time i.e. years depending on the amount being saved but it can be done, and has been done, with patience. Also, one or six months of savings I believe will not be enough, I would recommend a year, especially if a person loses their job. Nobody is promised to find a new job in one month or six, many people have been out of work for more than a year. Moreover, a person with skills may have to take a lower paying job and a person with minimal skills or none at all may just give up looking for work. Even in this current job market there are jobs to be found, unfortunately many people are not willing to take certain jobs because it doesn't appeal to them or because the pay is too low.
The point of saving up is that it will make you less reliant on having to use credit cards for emergencies. Overall the goal is the same, paying down a credit balance and making sure you're not using any more more credit. Otherwise, you end up in the same (sinking) boat.
No credit card at 24.9 %
You guys are just like americans! I don't have savings currently and I'm trying to pay off a lot of debt, and my opinion is that it is better to have some type of savings that you can use for emergencies or a large purchase or paying your property taxes, because using debt even though you have a huge credit line sitting there create a lot of stress. The Bible says that people in debt are slaves to the lender and no matter how quickly you pay it off come as soon as you swipe the card or use your credit line, you feel the burden. There's also something to be said for draining your savings account causing stress. LOL
Like Americans? We are Canadians... and are encouraging people to pay off debt, not use it. Agreed that debt is stressful. Thank you for watching.
It's better to. Build savings VS paying off debt and I know because I have over $300000 in savings and my debt is very, very small VS what I have saved.So I definitely will tell you to build your savings over.Paying off debecause.Once you have money, you can make money on that money which is interest.So that's kind of a gimme
If you pay off the debt, you can save your expendable income. Simple.
Exactly
I have $5600 left in debt for a car note. I have $3000 in savings and I make 40k a year. Should I use part or all of my savings to pay down the car note? If not should I keep the savings at 3k and throw everything I can at the debt until it’s gone or should I continue to make minimum payments as I build my savings to 3months of expenses (about 6k)
In this economy, it’s probably best to get you a fully funded Efund or savings of 3-6 months and then attack the car debt with everything you have. With inflation and all the layoffs happening and coming thats what i wld do.
He said Can Ada Ontario 😂
You missed a key detail, if rates do a Volker, you might be able to save your situation if you paid down your debt
Contrary to the gentleman’s disbelief, it is very possible for some to save a substantial amount in an emergency fund. Between my two emergency accounts, I’ve just over $42,000 liquid.