My Emergency Fund is Tempting Me

by Andy Hough on August 23, 2007

Now that I have my emergency fund established I am tempted to spend it on non-emergencies. My credit card debt is down to $724 and I could eliminate it if I tapped my emergency fund. That isn’t what the emergency fund is for though and since the credit card debt is at 0% and my emergency fund is earning 5.05% it wouldn’t make sense to pay off the debt.

I do however have a private student loan that has 11.75% interest. That loan balance is almost $2,000 so I couldn’t pay it off with my emergency fund but it would certainly help me pay it off faster. It does seem somewhat illogical to keep money in savings at 5.05% when you are paying 11.75% but I like knowing that I have the emergency fund available. I’m considering being even more illogical and paying off my credit card before the private student loan simply because I can pay off the credit card faster and have one less debt. As long as I am making progress I’m not going to be overly concerned with whether I’m doing the thing that makes the absolute best financial sense.

1 DreamingOfMoney August 23, 2007 at 2:14 pm

I sometimes struggle with wanting to spend my emergency fund as well. I have credit card debt of 3,000 and a car loan that needs paid off and sometimes wonder if I should use the emergency fund that I saved up in order to pay down one of those loans. I know the advice to pay down the debt with the most interest if you can’t earn that much on your money. But I find that I can keep my emergency fund and pay off my debt over time and I feel more comfortable. I don’t want to use my emergency fund to get rid of my credit card debt when I would be left with no cash left over. I may be doing it backwards, but I am doing what makes me the most comfortable.

2 Chief Family Officer August 24, 2007 at 10:27 pm

I would consider how long it would take to rebuild the emergency fund. Say you took $500 and put it toward your student loan. If you could rebuild that emergency fund in 2-3 months while still meeting your current payment and savings goals (i.e., paying your scheduled payment on loans and also continuing to put your set amount into savings) then I would think hard about it. There’s something very motivating about seeing the balances go down. Of course, you could just use the itch as motivation to find alternative income to get that debt down!

3 Challenging Debt August 25, 2007 at 9:15 am

Tight fisted. I understand where you are coming from. I had to use my entire emergency fund for my move and now I am trying to decide what’s more important. Do I rebuild my emergency fund and pay the minimum on my cc’s or de I continue to pay as much as I can on my cc’s and pay my usual $50 to my e-fund.

4 Vanessa August 26, 2007 at 3:12 pm

You should use the money that you have been putting into your emergency fund to pay off your debts. Which one you pay off first is up to you, because it is motivational to get rid of smaller debts first, but it does make more sense financially to pay off those with higher interest first.
Even if you are not continually adding to your emergency fund, it is there now and will continue to be there, so using the money that you have been funding it with to pay off your debts will help you financially.

5 MSMomsmoney August 29, 2007 at 1:42 pm

I am completely understand where you are coming from.

I recently had a CD mature, and put the money in a high yield savings account.

I am REALLY tempted to pay off a debt with that money. In fact I may just do that….

6 Tight Fisted Miser August 30, 2007 at 12:23 pm

Thanks for all the comments. It looks like I am not the only one thinking this way.

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