Emergency Fund Before Debt Reduction
Fri, Jul 24, 2009
I’ve posted a lot about debt this week (The Debt Cycle, Credit Card Reform – Creditors Fight Back & 3 Debt Quotes) and so I decided to keep the ball rolling today with mentioning a post from a fellow blogger, Matt Jabs at Debt Free Adventure. His blog is a journal of one man’s chronicles to become debt free using Biblical Principles.
In his article, Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman, Matt tweets with Suze about strategy in building emergency savings while paying off credit cards. Matt tweeted with Suze because of a discussion he had with his wife who saw Suze on Oprah. Turns out there was some misunderstanding so the post is quite humorous.
On the serious side, apparently, credit card companies are shutting down cards with zero balances. Suze makes the point people should have an emergency fund saved up before debt reduction and paying off their credit card balances, otherwise, they might be left without any means of covering an emergency. She recommends paying the minimum balances on cards until the emergency fund is established.
Matt offers an alternative approach to consider regarding paying on debt and building emergency savings. He discusses paying 75% of available funds on debt and 25% towards savings in order to continue to save while working on the debt reduction plan. I tend to follow the Dave Ramsey, Baby Steps approach which is soley focusing on building a $1000 emergency fund and then focus all resources on the debt reduction. Once debt is eliminated, the resources are focused on building a 3 – 6 month emergency savings.
As Matt says, it’s up to everyone to make a decision based on their particular situation. Enjoy Matt’s article.
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Tags: Debt Reduction, Emergency Fund
Ahhh… good ole Suze!
Although I do not agree with some of Suze’s finance advice, she did raise a good point in this particular case. However, I still disagree w/the way she goes about it, and choose instead – as mentioned above – to go with “the percentage approach”. This ensures I am building my savings continually, while paying MOST of my available funds toward my high interest debt.
I continue to wonder when people lost the inclination to save at least some no matter what. Even if you can only do $25/month… that is better than $0/month.
To save debate, I fully understand the DR approach of $1,000 in EF, then 100% toward high int debt until gone… I just don’t buy it. I’d rather always continue to realize at least a portion of my own hard earned money.
Cheers!
There is a great possibility of unexpected expenses for which you should keep some money as emergency fund. Post is giving great detailed knowledge regarding emergency fund, it will help the people who is having some less idea about it.