Debt can weigh you down. When you see that (seemingly) never-shrinking number on your credit card bill each month, you might feel the urge to throw every extra penny you have at it to make it feel, well…less big. Before you start attacking debt, it’s important to think about where your extra funds will work best toward your financial progress.
Prioritize building an emergency savings fund before you go ham on paying off your debt. An emergency fund is critical to help buffer unexpected, costly events - like getting laid off or that flat tire that came out of nowhere.
It’s all about expecting the unexpected and avoiding the "two steps forward, one step back" game.
Why it works
With an emergency fund in place, even if your wallet takes an unexpected hit, voila…your emergency fund comes to the rescue. You won't have to put that surprise expense back on a credit card and erase your hard payoff work. Adding more debt when you’ve been so good at getting rid of it, kind of feels like eating a whole pizza after a workout.
- Pick a target emergency fund number.
When it comes to how much to set aside, (the rule of thumb is 6-9 months), but it’s all about what feels right to you. Think about your living expenses. If you had to fall back on your savings, what amount would keep you worry free?
- Set aside as much as you can each month until you reach your goal.
You’ll still want to maintain on-time credit card payments of course (to avoid any negative impact to your credit score). So after you pay your credit card bill on time each month, throw any extra funds into that emergency savings account. Once you reach your goal, you’ll be all set to attack your other debt full-on.
If you can strike a balance between saving toward your emergency fund goal and paying down your debt, you’ll feel way more secure in the long run knowing you have a just-in-case cushion; because the only thing worse than paying off a credit card bill, is paying it twice.