It’s no secret that GMD doesn’t have an Emergency Fund while aggressively paying off debt right now. I even wrote a sweet ass post explaining all the reasons why a few months ago in the link above. But the main reason why I don’t have an EF while I am trying to pay off $45,000 of student loan debt? Because…
DEBT IS MY EMERGENCY!!!
and I don’t want to turn out like that sweet old couple toasting to finally paying off student debt while in my 90s.
This post came about because a few days ago, a sweet reader emailed me congratulating me on paying of my credit card debt. She told me that she is also in the process of paying off debt and had just paid off her $1000 credit card debt when she had to rack it up again to pay for a round-trip plane ticket from Winnipeg to Vancouver to be by her best friend’s side because the best friend’s infant son had tragically died from complications of a heart surgery. This broke my heart and I would have done the same thing as her without a moment’s hesitation. The reader ended her email by basically telling me in the nicest way possible to have at least a small emergency fund because life sucks sometimes and it’s good to be prepared without going back into debt.
I know most of you reading this are going to think “GMD, don’t be a fool, listen to her! You at least need a small emergency fund because you are not invincible to emergencies!” And you know what? I will agree with all of you that I’m not invincible to emergencies. But…there’s always a but right?
It all comes down to emergency funds being there because people like or need a psychological blanket to sleep at night. In this Girl’s humble opinion. Editor’s Update: Psychologicial blankets are OK too! I’m not trying to offend anyone I promise!
I may suck at math but I do know that I had a credit card balance of $12,000 with a 11.65% interest rate and a student loan balance of $45,000 that is thankfully on interest relief for now, but not for much longer. When I finally made my last credit card repayment, I saw that I paid over $550 in interest over 9 months. OUCH.
I could play it safe and put aside 6 months living expenses which would have been at least $6000 in a “high interest rate” savings account earning .5% monthly interest. That’s not even a full 1%.
Or I could apply that $6000 to my debt repayment.
I know it’s all about the individual’s preference since personal finance is personal but I would rather pay off my debt ASAP and if an emergency were to arise, then yes, it would put a dent in my debt repayment process but I wouldn’t let that dent discouraged me. If anything, it would only make me work harder. And if no dents were to arise, then I would be debt-free that much faster!
Editor’s Note: I feel like it’s only fair to add in that I don’t have any children to take care off and I am engaged to a personal finance savvy man so I know I am lucky in that sense. However, I know myself well and even if I was single, I still wouldn’t have an EF while paying down massive debt. Small debt is one thing but when my debt was once over $57,000, it means aggressive action now.