Emergency Fund First Or Debt First?
The Short Version
- A small cushion comes first, so 1 surprise bill does not go back on the credit card.
- How big it is, is your call. I don't give you a target.
- After the cushion, extra money goes to the debt you chose to pay first.
- Keep it where you can reach it within 1 to 2 days.
Why Not Put Everything On The Debt?
Because the next flat tire goes back on the credit card at the same interest rate, and the balance you just paid down comes back.
How Big Should The Cushion Be?
That is your call. Look at the surprise bills you had in the last year: a car repair, a copay, a trip you had to make. Pick an amount that covers the kind of bill that usually catches you.
Where Do You Keep It?
Somewhere you can reach within 1 to 2 days, and not so close that it gets spent. Before you use an account for it, check how long a transfer to your checking account takes.
What Comes After The Cushion?
Keep paying every minimum, and send any extra money to the debt you chose to pay first. Not sure which? The debt snowball calculator compares both strategies for your own debts.
Want The Steps?
I'll email you the steps in order: the cushion first, then the debt strategy for your own balances.
Sent. Check Your Inbox.
The steps are in an email from Nadia Fixes Money.
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Next Steps
- Put your debts in order in the debt snowball calculator.
- See where you stand today in the net worth calculator.
- Take the 1 minute quiz: Which Stage Are You In?
Questions People Ask
Should I pause extra debt payments to build it?
For a short while, yes. Pay every minimum, build the cushion you picked, then send the extra back to the debt.
What counts as an emergency?
A bill you didn't plan for and can't skip: a repair, a medical bill, a lost paycheck. Not a sale.