by Bo, July 31, 2014
It is much like the chicken or the egg question. But for me, I tend to follow the emergency fund theory. Building up your emergency fund is going to impact you more in a positive way because you will have the cash on hand should something happen you are not expecting. By building a sufficient amount in your emergency fund, you will not need to reach for that credit card, which will allow you to keep paying it down or keep your balance at zero.
Once you have set aside your initial emergency fund amount, be it $1000 or $5000 and more, you can then focus on paying off debt. This method allows you the peace of mind to have that slush fund to fall back on should something happen. You are then still in the pay off mode and not the “just use the credit card” mode.
Protecting yourself by setting aside cash into your emergency fund so that you have a cushion is a great feeling. Knowing that the cash is there should you need it allows you to focus on paying down debt and then once the debt is gone, saving more aggressively.
What are your thoughts on this topic? Share your comments below.