Why Building an Emergency Fund While Paying Off Debt is So Important

emergency fundAs many of you who have read my other articles on money know, I am trying to pay off my student loans which right now are still at about $55,000.  I don’t make a lot of money as a nanny, and I live in an expensive area so getting the money together to make a dent in my loans each month can be really tough, but the progress feels amazing.  Lately though I have started to worry what I’ll do if a big expense comes up.  A few years ago out of no where when I was much less financially stable, I ended up with a pretty large infection in the front of my mouth that required drilling through my jaw (NOT FUN), several root canals and two trips to the ER.  (I have very bad teeth and shortly after that also had to have a crown on a different tooth and pull yet another.)  The total cost was around $7,000 even with dental insurance.  $7,000 to me might as well be $50,000.  I just don’t have it and I hardly had any money to put down up front.  Thank goodness for an amazing dentist who was willing to work with me so I could pay it off. Anyway, I digress….

I have made a ton of progress on my loans and seeing those numbers go down is a great feeling.  The past couple months have had me a little worried though. We are planning on moving about three and a half hours away at the end of the summer to be closer to Boyfriend’s daughter.  With moving that distance comes a lot of costs. So I have been saving up for that and our upcoming trip to Washington to visit Boyfriend’s family in the spring.  Even though I am saving a lot, paying more than the minimum payment on all my loans and meeting everything on time with a little bit of wiggle room incase things come up, I am terrified of what will happen if the other shoe drops.  With so many things going on there is bound to be a hiccup.

Here’s a quick list of my possible “emergencies”

1. car break down

2. not being able to find a job when we move (I am terrified!)

3. random unexpected medical expense

4. one of us losing our job early

5. one of us having to move before the other (has a big impact on rent)

I guess its a pretty common fear, everything is looking good right now so I am just waiting for something bad to happen.  My car is 15 years old and I’m guessing thats going to be the upcoming drama.  If my car were to die today and I had no emergency money saved up (I also have a separate fund for car repairs which is smaller and I would pull from first,) I would be screwed.  The interest rates on a car with no money down and not great credit are terrible.  I am sure I would be in the 13% range.  If the car needed a couple thousand dollars worth of work I’d have to put it back on credit, reversing all the good work I have been doing.  So while some would argue that its better to pay off my student loans that have an 8% interest rate, I feel I need to split the difference and pay a little extra on all of those to keep making progress, but instead of dropping every extra dime on them, use that little extra to get my emergency fund in order.  Otherwise any emergency is going to result in more money at a higher interest or more money on credit with with a higher interest rate.  I am hoping to get 3 months saved up before I go back to my current loans a little more aggressively.

Do you agree?  How do you handle paying off debt and funding an emergency fund?

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6 thoughts on “Why Building an Emergency Fund While Paying Off Debt is So Important

  1. I totally understand. Between credit card debt and school loans, I am VERY slowly working my way toward financial freedom. I used to believe that it was a waste of money saving for an emergency when I had debt. The truth is, it has been a blessing when things come up. I am learning to pay myself first, no matter the amount before I pay any extra on bills. I agree with you 100%. Have a ThirtyOne-derful day!

  2. My son owes about $40K loan after $60K scholarship and $20K I paid out of pocket. He has found only part time work at low wages for a decade and has not paid much but I try to get him to send at least $25 a month even though payment is at least 8 times that. He does not have a car. I know people like you have integrity and take responsibility for debt but I would suggest paying less and building that emergency fund. I don’t think my son will ever get student loan paid off but by sending something it shows good faith. There are so many million$ owed by so many people my theory is that the Fed will eventually do a write off. The people that paid something should get the better break than those who paid nothing. It has not affected his credit and in the case of so many millions of people it takes every bit of income just to survive through the month. I justify my attitude in that illegal aliens with that “anchor baby” are bleeding the government dry getting every form of welfare available. I refuse to subsidize that.He has been able to get repeated extensions and at least by maintaining contact he has a record of not merely walking away. I don’t think the Fed is determined to collect as they do not attach an income tax refund and they surely are able to do that. I think less than 8% interest rate can be negotiated even if you are not making full payments. A letter to the Fed explaining your financial situation also may encourage them to offer a reduced rate of payment as they are happy to even have debtors merely stay in contact. Work the angles so you are not rendered unable to support yourself espicially if a huge expense may come your way.

    • I just try to see what I like. Sorry I can’t be of more help. I also google free fonts and pick out which ones I think look good. Just be sure to check out any usage restrictions they might have. 🙂

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