The following post is from Melissa Batai
My husband and I have been in significant debt twice in our married life. Once was about 10 years ago when we had a very small income for our family of five while my husband was in graduate school. We paid off that debt by following Dave Ramsey’s baby steps.
The second time is now. About two years ago, we had serious medical issues come up with our child, and insurance paid very little for his treatment. We’re paying off that debt now, but we’re NOT following Dave Ramsey and his advice to have a $1,000 emergency fund before paying off debt. Instead, we’re continuing to grow our emergency fund while paying down debt.
Why the $1,000 Emergency Fund Didn’t Work for Us
So, if Dave Ramsey worked for us before, why aren’t we following the same plan now to pay down debt? Simply because the first we paid down debt, we had to keep going in debt every time an emergency came up that cost more than $1,000.
When you’re working as hard as you can to pay down debt, going back into debt for an emergency can be very discouraging. Plus, as a family with young kids and an unstable income, I did not feel financially secure with such a small emergency fund.
Why You Should Save More Before Paying Down Debt
There are many reasons why I’d recommend having more than $1,000 emergency fund before paying down debt:
Avoid going into debt again. Make this the time that you pay off debt and never go in debt again. The primary way to do this is by having a large enough emergency fund to pay unexpected expenses when they come up.
Feel confident about your money. While it sounds strange, your attitude toward money somewhat determines how money flows into your life. If you’re nervous and uptight about money, you may inadvertently prevent that flow of money. If you’re in a good place and confident of your financial decisions and positions, you tend to attract money, giving you more money to pay off debt.
Protect your family. If you have a family, you want to be able to care for and protect them, and to do that, you need money. If you suddenly lose your job, you want to be able to still feed your kids and pay the mortgage. You need money set aside for that purpose, and $1,000 won’t make much of a dent.
How Much Should You Save First
Determining how much to save first before paying down debt ultimately depends on your comfort level.
Some people want to save a full three to six months of living expenses. This is a good decision if you have an unstable income or are facing a life change in the next year such as a move or a new baby.
Others save a smaller amount, such as $5,000 to $10,000 before paying down debt. That amount of money will cover most unexpected expenses such as a home repair, a car repair, or a medical bill.
If you’re in debt, I know how much you want to attack that debt and pay.it.off.right.now! However, take the time to first lay a good financial foundation by having a larger emergency fund, which will prevent you from going into debt again.
My Question for You
Do you agree that people should have a larger than $1,000 emergency fund before tackling debt, or do you disagree? If you agree, what do you think is a good amount to save before paying off debt?