Don’t raid emergency savings to pay off debt
Even though I did. Here’s why you shouldn’t.
“I’m so close to being debt free! Is it okay for me to pull money out of my emergency fund just to get debt free now?!”
Quick answer
Please don’t. Unless you have a hefty emergency savings fund (aka more than six months). If you do have ample savings, then sure, you can probably take the chance that nothing will go wrong before you replenish the funds. Otherwise, it’s a big, big risk.
Detailed answer
In December 2019, I posted this to Instagram.
Then I proclaimed,
🎉WE’RE DEBT FREE!!! We made the “irrational/emotional” choice instead of the purely logical. Today, we pulled $3,034.19 out of our emergency savings + our regular (more-than-minimum due) payment to crush what remained of Peach’s student loans. We’ve paid off over $51,000 since getting married in August 2018. I wanted to leave these loans behind in 2019 and enter 2020 focused on our new financial reality.
We debated whether to pull from our emergency fund or just wait until January when we’d pay off all the loans with the normal payment we made. “Personal finance expert/author” Erin thought we should wait. But IRL Erin + Peach wanted to say 👋🏻 buh-bye now to student loans! Pulling just over three grand from our e-fund still leaves us with a healthy runway while we replenish it in the coming months.
You see the timeline here, right?
December 2019 we raided our emergency fund to get debt free. By March 2020, the world was locking down and my income was drying up fast. Speaking engagements were being canceled. Companies froze their budgets for working with influencers. Media outlets pressed pause on assigning stories to freelancers.
My husband and I quickly switched to using our bare essential budget, plus, it’s not like we could go out and socialize anyway. About five months later, my income started to stabilize and we were okay, but it taught me an important lesson.
It’s understandable to make the emotional decision, but be wary.
Should you decide to pull money out of your emergency savings fund in order to pay off debt, then please make sure you don’t zero out your savings. You really don’t know what’s on the horizon. Without emergency savings, you’d likely have to finance the unexpected on a credit card. Don’t set yourself up to fall back into a debt cycle.
Additional reading:
Generally good advice(!)
Debt-free at the cost of dangerously low/no emergency liquidity can be more risky, restricting, and stressful than slowly paying off moderate debt with acceptable terms.