Why An Emergency Fund is So Important When Trying to Get Out of Debt

by RC on January 22, 2011

If you know about Dave Ramsey’s Seven Baby Steps, his plan for getting out of debt, building wealth, and attaining financial freedom, then you know that baby step # 1 is building a $1,000 emergency fund.

But why do you need to save an emergency fund at all?
Why can’t you just use that money towards paying off debt?

Why? Because stuff happens. Because life happens.

You never know when life is going to throw you a curve ball of unexpected expenses- the only thing you know is that at some point it will.

A necessary car repair, home repair, medical bills, or others extra expenses have a way of popping up at exactly the wrong time.

You need some kind of buffer to keep you from a serious financial disaster. That’s what an emergency fund is for.

Why can’t you just use credit cards if you get into a financial jam?

Well, because continuing to use credit cards (probably at a high interest rate) just keeps you stuck in the same cycle you’re trying to get out of.

Using credit cards can also impede your progress on paying off that debt by adding to the balance. You  end up going backwards instead of forwards- and that can be really disappointing, possibly leading to  frustration or even giving up on your quest to be debt free.

For some people, $1,000 may not be enough to feel comfortable. If you have a family, you may feel like you want $2,000 (or even more) as an emergency fund to feel comfortable. There’s not really anything wrong with doing that, but saving that much money can take time, particularly when you are struggling to pay off bills and are in a bad financial position.

On the other hand, if you don’t have an emergency fund at all, $1000 is better than zero dollars. $1000 can take care of quite a few emergencies and keep you on track paying off your debt.

That is why the emergency fund is so important when paying off your debt. It can keep you on track with your debt payments, and help you avoid frustrating setbacks with your plan.

The emergency fund can help set you free…….free from debt.

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{ 1 comment… read it below or add one }

Kiki January 24, 2011 at 5:47 pm

Very good points. Sometimes it feels like you are trying to split up your goals but this is a very good explanation about how saving adds to the goal of getting/staying out of debt.


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