I’m in Debt! So why should I have an emergency fund?

by Mike Holman

PaidTwice of www.paidtwice.com has kindly written a guest post with her thoughts on having an emergency fund. PT started her excellent blog to document her family’s journey to get out of debt. If you want to read an upbeat debt reduction blog written by someone with a PhD who works at home with her two young children (I didn’t think it was possible) then I strongly recommend checking out her blog.


There are many schools of thought on if someone who is in debt and working to pay that debt down should have an emergency fund. The money that sits in the emergency fund could instead be applied to debt reduction and help the person get out of debt just that much faster. Well, I am here to say that I am firmly in the “have an emergency fund” camp. Not a fully funded, extensive, cover any possible contingency emergency fund, but something that you can fall back on if small things come up so you don’t need to resort to using credit and increasing your debt.

Debt is more than a financial predicament. It can become a state of mind, and also a recurring behavior. If the only thing you have to fall back on if something unexpected comes up (and, just assume that something will, at some point come up) is credit, you can feel like you are just sinking back into the hole of debt you are already in, and it can erode any feelings of progress you have made. Personal finance is about taking control of your money, but it is also about personal behavior. Once credit is again used, it can become all too easy to keep using it, and end up worse off than when you started debt reduction. It can also begin to feel hopeless and not worth it if the debt continues to rise even when you feel like you are trying to reduce it.

But what if you’re sure you won’t fall back into the pattern of accumulating debt if you have a setback? That is where I feel I am, and yet I still would rather a cash emergency fund rather than a credit safety net. Why? Because debt is an oppressive weight. Debt makes me anxious, on edge, and simply the idea of using a credit card I won’t be able to immediately pay off and putting myself further into debt just makes me edgy. I feel the interest I am paying adding up deep in the pit of my stomach. The feeling of peace I felt when we finished saving our $1000 emergency fund is really unexplainable. No, $1000 can not cover any conceivable emergency, but it can cover a whole lot of things that might come up. Knowing that I won’t need to immediately turn to credit if my car breaks down or I get sick is a very good feeling. I wish I could bottle that feeling and sell it. That’d help the debt reduction!

As for the emergency fund, ours is $1000 and it will increase over time… once we are out of debt. My spouse and I have not quite decided exactly how much we want in it, but at least 3 months of expenses if not up to 6. It is an ongoing process. That is really a personal decision based on what kind of emergencies you might be able to foresee and also your own life circumstances, but I am not recommending $1000 as the end all of emergency funds. But for someone who uses every spare penny to pay down their debt, that $1000 cushion is a lot to reserve. But completely worth it, in my opinion, is for nothing else, the peace of mind it provides.

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