Pay debt or rebuild EF?
It feels like we hit a fork in the road of life’s decisions. We eliminated a bunch of balances on cards earlier this year, but two small ones have returned. The EF was wiped out by my wife’s car repair and she charged up the debt on these store cards. Does it make more sense to build up the EF again or make these new debts go away quickly? It’s been on my mind all weekend.
The problem with paying off debt and not having an EF is when there’s another emergency. The odds are what they are, so it’s taking a chance to dump debt and postpone the EF until it’s gone first. I know that one of these cards can be taken out this month, but the other I’m not sure. Instead of doing that I could just make the minimum and build up the EF a little bit this month. It just sucks to be in a situation where the debt has gone up and there’s no EF, we have no choice but to continue going into debt if something happens.
My other major stress is the income situation this month. She is working at her current job up to 8/15 and then after that, I don’t know what she will be doing. I can tell this is starting to stress her out because she’s very worried about finding a job right now. The last thing I want to do is harp on the situation to make it even worse than it currently is. So I try to be as supportive and encouraging as I can, but stressing the importance of having to do something to earn income.
Even though my wife’s income runs out 8/15, it’s still the place I would rather be at this time. We have about 10 days yet to get to Friday which has another weekend smack in the middle. Living paycheck to paycheck isn’t exactly a fun thing to do, but it’s what we have to do this month. Hopefully the week goes by quickly and we keep our spending to an absolute minimum.
I think you need to look at the value of peace of mind. Which will stress you more… having no emergency fund or having the debt? I get the feeling that you might really want that emergency fund cushion. I think the idea of just paying the minimum on the debts for a month and boosting your fund should help.
If these are store cards she hasn’t used in a while, could she try and get them to lower the interest rate on them at least? Might be a worth a quick phone call.
Hang in there!
I agree with ReddH on the stress part. I also think it depends on both of your jobs. You mentioned in the post that she is worried about finding a new job. If you would happen to lose your job during that period, what would you both do? Without an emergency fund, that will make life even more stressful. I would go with the emergency fund if it was me.
I would agree, go with the EF first.
I agree with ReddH. Do whatever would be less stressful. I lost most of my EF, and it is starting to stress me out even though I have been making progress with my credit card debt. I am going to change my focus this month so that I can build my EF back up.
I would rebuild the EF first. I think it is better to have that cushion rather than be hit with an emergency and then having to charge it, thus building more interest on your existing cards.
Rebuild your emergency fund. I would think having some money in the back would give you some peace.
Oops… typo!
I would think having some money in the BANK would give you some peace.
I usually don’t find myself disagreeing with everyone, but I would go the other way on this one and pay the credit card off first. The only way I would consider funding the EF instead is if the interest rate on the card was 0%.
Here’s why:
If you pay the card off then you save yourself any finance charges and can begin rebuilding the EF. If no emergencies happen before the EF is funded then you are in a good spot. If an emergency DOES happen before the EF is funded then all you have to do is put it on a credit card, which would only put you back in the exact same place you are now - you’ve lost nothing.