When you’re sitting on a pile of debt, particularly of the credit card variety, it can be tempting — and smart — to take every spare dollar you’re able to eke out and apply it to your outstanding balance. The sooner you get rid of your debt, the less it’ll cost you in obnoxious interest charges. 

But while using your spare cash to pay off debt is generally a good idea, there’s one common scenario where it’s not: You don’t have emergency savings. If you’re without an emergency fund, establishing one should be your chief financial goal — and that means focusing on building savings before chipping away at those nagging credit card balances.

Why Emergency Savings Should Trump Paying Off Debt

The reason you need an emergency fund before paying off debt is simple: Without one, you risk racking up — wait for it — even more debt. 

Imagine you owe $200 on a credit card and have no money whatsoever in your savings account. If you’re able to cut back on expenses for a month or two to free up that $200, you may be inclined to use it to knock out that pesky credit card balance. But what if you do so, and then a week later, you’re hit with a surprise $200 expense you can’t cover? Suddenly, there you are, in debt again, and all because you don’t have any money in the bank. 

That’s why building your emergency fund needs to come first. If you don’t go that route, and you get stuck racking up more debt, it could end up being costlier than your initial debt pile if the interest rate attached to it is higher. And you really don’t want to let that happen.

Building Your Emergency Fund

Ideally, your emergency fund should contain enough money to cover three-to-six months of essential living expenses — things like your rent or mortgage payment, auto loan payment, healthcare, utilities and food. While hitting the higher end of that range is smart, if you’re starting out with no savings and are already in debt, then you’re pretty safe to amass three months of living expenses in the bank. After that, you can move on to tackle your debt, and then put more cash toward emergency savings once your debt is done with. 

Where will all that money come from? You can scrounge up savings in a number of ways. Cutting back on expenses is a big one, as is getting a second job on top of your main one to boost your income. You can also get creative by selling belongings you don’t need, or bartering for certain services you typically pay for (for example, you might agree to do some marketing work for your hairdresser in exchange for free haircuts for the next six months). 

Also, be sure to stick any bonus cash you come into during the year directly into the bank. That money could come in the form of a tax refund, a financial reward from your employer for hitting a key milestone at work, or a generous birthday gift from a relative. 

Let’s be clear: Paying off debt is a smart financial move, and the sooner you do it, the better. But if you’re without a solid emergency fund, the latter needs to be your first goal. If you don’t build emergency savings, you’ll likely get trapped in a cycle where you keep racking up debt and struggling to pay it off. And frankly, that’s not a situation you want to get stuck in. 


This article was written by Maurie Backman from The Motley Fool and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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