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Wednesday, February 5, 2014

A Girl and Her Money : What do I Tackle First: Debt or an Emergency Fund?

Hello all!

Boomer is off school yet again today, and my car got stuck twice this morning! This winter is SO MUCH FUN. Anyway on to today's topic.

I find it odd that about 6 months into my journey to be more financially literate and aware, friends are now turning to me to ask questions and advice. Case in point last week, when a girlfriend asked me

'Whitney, should I have an emergency fund in place first, or pay off my credit card?'

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While I'm no expert (yet), based on what I've read and my own personal experience here is my $0.02 worth. I think it is important to set yourself up with some sort of emergency fund FIRST. A lot of people throw out amounts of $500-1000. I think that is a good place to start depending on your income. Here's why.

Let's say you throwing all your extra money at your credit card. You're making a dent in it, but then you blow out a tire. It's not in your budget, so how are you going to pay for this unexpected expense. That's right. You'll whip out your trusty credit card again and run up the balance, negating all the hard work you'd put into paying it off. Now if you'd had $500-1000 socked away you could have just dipped into it to take care of this emergency.

Depending on what your situation is, building up a small emergency fund shouldn't be too difficult. I've only been saving towards rebuilding mine since December and I'm already at $300. Cut out a few Starbucks trips here and there, and pack a few lunches and you'll be surprised how much money you can 'find' in your budget. It's not easy, and it's not quick, but it takes awhile to dig out of any financial mess you're in.

Bottom line: Keep paying those minimums until you have an emergency fund in place to cushion yourself.

For me, at first it seemed like all this work was a drop in the bucket. All told I am about $90,000 in debt.


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Thank you student loans for 93% of that number.

When I stopped focusing on and being overwhelmed by that big number, I was able to focus on smaller goals. I can be proud that my savings are progressing. I can be excited that I threw an extra $75 on my car payment last month. Every little change and improvement to your finances is worth it!

It seems like financial health is something you guys are interested in based on the comments I've been receiving. Is there anything you'd like me to talk about in the future? I've already got one request for a post about how I'm saving money in my budget from Alisha so that's in the works! I also love reading the Sally and Perkins posts from Erin!

You can read my first A Girl and Her Money post HERE.


Kathy@MoreCoffeeLessTalky said...

i am the opposite - i dumped in as much as i could towards debt because no matter how much you try to save, the interest alone - esp credit cards - will just suck everything out of you. get rid of the debt first as fast as you can and then sock away moolah.

of course, you can still contribute to savings while you're doing that but when you get rid of the debt, you can put away more savings faster.

Vodka and Soda

JumpingJE said...

Emergency funds are SO important. I don't touch them and don't invest them because I know the $$ will come in handy someday and it won't feel like the world is falling (and I wont have to borrow from mom and dad!)

Alisha @ The Alisha Nicole said...

I was JUST talking to my mom about this a few days ago..I was wanting to pay a little extra on my student loans but was afraid that I wouldnt have anything extra if something were to happen..thank you for clearing this up!

jackie jade said...

agree that it's important to have at least a decent emergency fund and then better to tackle debt. and don't feel bad because my total debt is VERY close to your amount, so I feel ya. stressful, but I continue to work away at my debt while also putting a little into savings and money towards retirement. we can't do it all at once but it's important to start!
-- jackie - jade and oak

Rachel said...

I have been debating this myself. I don't have too much credit card debt, but C always reminds me that I am paying interest on it. I feel more comfortable with a rainy day fund though. And boo to student loans. I never knew how much C's were until recently. Everyone thinks doctors have cushy jobs and huge paychecks, but he's got a quarter mill to pay off from med school. Yeesh!
-Rachel @ <a href=">With Love, Rachel </a>

Cee said...

Debt is such a tricky thing - I've been very lucky to avoid it thanks to a generous fund for my education, but my husband was not so lucky. I married into debt, so to speak, and digging us both out of it has been a learning experience for sure. But there is nothing better than the feeling of seeing those numbers go down, no matter how slowly. Good luck on your journey!

MarlaJan said...

I see it from both sides. I can see how putting money aside for a raining day, or a blown out tire, is so important. That said, if the interest rates on your credit card(s) is through the roof, and you're only to pay the minimum each month, you will NEVER get out of debt. It's a double edged sword. Both are SO important, but I think it's more dependent on each individuals situation.

Unknown said...

I am torn between the both and after grad school, I plan on seeing which would be more important. I am excited that the man is finally out of school which will definitely help with increasing our emergency fund!

Amanda - Voyage of the MeeMee said...

I'm currently trying to decide what's best for me in terms of saving for an emergency or paying off debt. I lean towards paying off debt just because having it stresses me out all day every day.

Erin LFF said...

I think having an emergency fund is SO IMPORTANT. I can't tell you how many people I know just say their credit cards are for those emergencies, but that is a slippery, dangerous slope to go down. We aim to keep $1,000 in our e-fund, and it's worked great for us. We've had a pricey home repair and a pricey car repair that required us to dip into that, and it was SUCH a relief.

Setarra said...

I just started adhering to a strict budget to save for my euro-trip and I've saved a decent amount of money so far which made me realize that I should just continue to save money even if it's for nothing in particular. I find that handling cash instead of swiping my card really makes me conscious of the money I spend.