Emergency Fund Before Debt Reduction

By in Debt

I’ve posted a lot about debt this week (The Debt Cycle, Credit Card Reform – Creditors Fight Back & 3 Debt Quotes) and so I decided to keep the ball rolling today with mentioning a post from a fellow blogger, Matt Jabs at Debt Free Adventure.  His blog is a journal of one man’s chronicles to become debt free using Biblical Principles.

In his article, Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman, Matt tweets with Suze about strategy in building emergency savings while paying off credit cards.  Matt tweeted with Suze because of a discussion he had with his wife who saw Suze on Oprah.  Turns out there was some misunderstanding so the post is quite humorous.

On the serious side, apparently, credit card companies are shutting down cards with zero balances.  Suze makes the point people should  have an emergency fund saved up before debt reduction and paying off their credit card balances, otherwise, they might be left without any means of covering an emergency.  She recommends paying the minimum balances on cards until the emergency fund is established. 

Matt offers an alternative approach to consider regarding paying on debt and building emergency savings.  He discusses paying 75% of available funds on debt and 25% towards savings in order to continue to save while working on the debt reduction plan.  I tend to follow the Dave Ramsey, Baby Steps approach which is soley focusing on building a $1000 emergency fund and then focus all resources on the debt reduction.  Once debt is eliminated, the resources are focused on building a 3 – 6 month emergency savings. 

As Matt says, it’s up to everyone to make a decision based on their particular situation.  Enjoy Matt’s article.

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About Jason

Jason started blogging in 2009 when he created One Money Design. Since then it has grown into a group of writers with unique personalities and a common goal of helping people on the journey to true financial freedom. Jason is an IT project manager by day, but you’ll find him blogging about personal finance and exploring web entrepreneurship late at night and the early hours of the morning. He’s also actively involved in a financial coaching ministry in his community where he shares principles of biblical stewardship and helps people learn to manage their money wisely. Jason enjoys spending time with his wonderful wife and two awesome children and lives in north Dallas. Twitter | Facebook | +Jason Price
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  • http://www.DebtFreeAdventure.com Matt Jabs

    Ahhh… good ole Suze!

    Although I do not agree with some of Suze’s finance advice, she did raise a good point in this particular case. However, I still disagree w/the way she goes about it, and choose instead – as mentioned above – to go with “the percentage approach”. This ensures I am building my savings continually, while paying MOST of my available funds toward my high interest debt.

    I continue to wonder when people lost the inclination to save at least some no matter what. Even if you can only do $25/month… that is better than $0/month.

    To save debate, I fully understand the DR approach of $1,000 in EF, then 100% toward high int debt until gone… I just don’t buy it. I’d rather always continue to realize at least a portion of my own hard earned money.

    Cheers!

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  • http://www.prime-targeting.com/guidelines-for-building-an-emergency-fund/ Emergency Funds

    There is a great possibility of unexpected expenses for which you should keep some money as emergency fund. Post is giving great detailed knowledge regarding emergency fund, it will help the people who is having some less idea about it.

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