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Pay Off Cards Or Save For An Emergency?

  August 15

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What comes first, the chicken emergency fund or the egg paying off credit cards?

Manisha Thakor, author of On My Own Two Feet, says to go for the emergency fund first. Her reasoning is that the average “unexpected” expenses for Americans is $2,000.00 per year. That sort of price tag can plunge you even further into credit card debt, starting a vicious cycle. Yet, to me, even more frightening is that Manisha writes that vast majority of us only have about $500.00 in savings. I want to do better than that. So even though I wrote about saving for an emergency fund immediately, I’m starting to re-think my approach.

Plus, I did what any blogger would do by asking my personal finance buds on twitter for the answer. Here’s what they said:



And you know what, I tend to agree with them. I’m ready for the cards to be gone first. If an emergency comes, I will just do the best that I can. The good thing is that with the large amounts of extra freelance work that I’ve been doing lately, I can now write down the following goals:


  • Pay Off the last credit card by October, 2012 – $2,000.00
  • Pay Off Hubby’s Undergraduate Student Loan #1 by October, 2012 – $358.00 (This loan is so low; only one more payment!)
  • Put $5,000 in Emergency Fund by December, 2012


So, wish me luck in this endeavor. I am not doing anything differently than I usually do except focusing my savings into one specific plan to snowball my finances. So, instead of taking my leftover each month and diving it among the 5 things I am currently saving for, I am taking one at a time. It’s actually more fun this way, and I’m really excited about the possibilities!

What do you think? Credit cards first or emergency fund? I want to hear it!

21 responses to “Pay Off Cards Or Save For An Emergency?

  1. I’m with you! With the high cost of interest, not to mention any late fees that you could get if you’re late one month, I think it’s important to pay down the debt as quickly as you can. Speaking from experience. Also, I really love the book I Will Teach You To Be Rich . Weird name, but good, easy to read book that has the best plan for getting out of debt and amassing savings that I’ve ever seen. I tried them all. . . this is my favorite, most realistic approach.
    (No, not paid to promote this!) 🙂

  2. Well I would have something in the emergency fun first, even if it is only a couple thousand dollars. Try to find a no or low interest credit card to transfer your balance to, and then you pay down a little less while building up your emergency fund. Just my two cents!

  3. As long as emergencies can be put on credit cards, you’re better off paying those off first. But some people need to see their positive balances increasing to be able to stick with it. In which case, do a little from column A, a little from column B.

  4. I’m usually a “emergency fund first” kinda guy, but based on your timeline, you should kill that card! it will beVERY relieving knowing that you are no longer in CC debt, and now you can really put your money to work on your other goals!

  5. Thanks for including my tweet 🙂 I’ll reiterate that I would pay off my credit card debt first because most(if not all) emergencies can be put on a credit card. Or am I missing something? I don’t care about psychological effects or any of that crap, I want to make the most of my money..

  6. I struggle with this one! I prefer to have at least $500-$1000 in the bank just in case; Bruce (hubby) wants to put every cent towards the debt. I find it winds up being a wash – if we have an unexpected expense, we just reduce the debt payment that month to cover it anyway, so we’re not really any further ahead or behind.

  7. Thank you so much for this post–this very question bogs my mind every time I sit down to make a CC payment–make a nice, productive payment on the card or keep the cash while I have it (my job funding is up in October, so I’m saving for when I don’t have an income and also saving for wedding stuff). I think my happy medium has been paying more attention to my savings account. I set up my account so that every week until October, $20 goes into savings. If I cut my coffee and froyo habit, I don’t even notice this amount gone from my checking. At the end of the month, I have $100–I can use it for a CC payment or keep it in savings. Either way, my payment is taken care of and/or I’m growing my savings account, which makes me feel better about anything coming out of my checking. I think this balance is working out for me…so far so good!

  8. I’m still going back and forth on this. I see the benefits of a good emergency fund (I live alone and am 5 hours from close family an boyfriend), but I really want to kill my debt.

    I think your plan and timeline work really well though, since you’ll have your deb killed in a few months. Congrats on your future accomplishments!

  9. For me, “save for an emergency” really means invest. Either in tools or bullion, or canned food. But I guess that’s because I’m a nut.

    But really I just straight up don’t buy things on credit that don’t need to be bought on credit. If it costs less than 500 bucks, it’s worth saving up for. No impulse buys that way anyway. And it’s easy to leave an unused credit line open at a bank, so you can make an emergency transfer to your checking.

    As of right now, I’m doing neither. Saving paying off my college loans for when I have a higher salary (since they’re low interest anyway), and preparing for an emergency by keeping my credit rating impeccable.

  10. Credit cards! My advice is simple – just always go with what has the highest interest rate. If you’re paying more in credit card interest than on the rate of return you’d make within your emergency fund, than there’s your answer!

  11. Budgetting is very near and dear to my heart. My husband and I and our four kids just paid off a HUGE amount of debt in two years. I think that the emergency fund is crucial. If you use CC’s for emergencies (that you know will happen, you just don’t know when :)), you can set up a vicous cycle of never getting out of debt. Plus, you have to break the mental habit of thinking of CC’s as your fall back plan. I think the emergency fund (based on your family size maybe) shoud happen FAST! Have a yard sale, bake sale, eat PB&J for a few weeks, cut out everything that is not essential for life until your emergency fund is established. There is great comfort in knowing that an emergency water heater break will not further sink you in debt! So wonderful that you are posting all of these ideas about money. Many of us did not get this kind of instruction from family or school. 🙂

  12. I’m with the crowd – it seems pointless to me to save the money when the credit cards are eating away at your savings in the first place!!! Besides, it sounds like you’ve got the debt seriously under control; you’ll be saving for that emergency fund in no time!

  13. Why can’t we do both? 🙂 What I did while I was working to become debt free, was to save a mini emergency fund – of a full months salary, and then switch gears towards paying off all my credit cards/consumer debt. That way I didn’t have to worry about a small financial emergency derailing my financial goals. It worked really well for me, but everyone’s budget is different. So you’ll have to see what works best for you too! Good luck 🙂

  14. Sounds like you have it all covered!

    The only thing I caution folks about in paying off credit cards first is that you don’t get back into the habit of loading them up again! At least with an emergency fund in progress, you are training yourself to save, not spend.

  15. A combination of both. $1-2K in savings for emergency first, then pay off the credit cards, then go back to saving 3 months’ expenses.

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