Hypothetically: Debt or Emergency Fund?

[greedy4chips]

I am considering this in a vacuum, whereby you have no CCs to bail you out since that is an EF for some. I am also looking at this from the no other assets to tap into such as home equity or investments for emergency purposes.

Basically I look at it like you have a choice of 4 days of water or a map to get you out of the desert in 1 day, which do you choose?

100% of the time I choose the 20k emergency fund! This is only 20 months away and I will begin to be able to pay the $1k/month to the student loan. Yes the student loan did gain $1800 roughly in those 20 months. However, I have security in knowing I have the money to fully pay the loan off if not paying it would result in certain death.

As far as Katrina is concerned, many rich people were victims too! Every single natural disaster has people who will not heed warnings to leave their homes, seek shelter, or make prudent decisions.

At what point did New Orleans give permission to looters and criminals to take advantage of the disaster?

And why are we rebuilding Atlantis? Is this not a ridiculous concept? All we heard is how many poor people live there because there is no decent jobs for them. Funny how many want to go back to their free brand new homes! We have a local bank middle management person who relocated from New Orleans area. This was his "get out of jail card". A fellow student at my tech school works for him now.

[lrjohnson]

Originally Posted by greedy4chips

All we heard is how many poor people live there because there is no decent jobs for them.

"All we heard"?!?!?

[greedy4chips]

I am sorry lrjohnson...did you hear any different from the national news? How about all the accusations that aid was not given as quickly as it should have been since there was a large percentage of victims who were minorities.

We just spent 3 days in my Sociology class reviewing footage from Katrina and how the media portrayed it one sided. Only poor people were affected. Only poor people were victims. Why couldn't the govt have done more to help the poor to get out?

We also discussed the collapse of common decency when it comes to looters, armed robberies, and how quickly society collapsed.

13 million homes are located in Hurricaine prone areas. This is not the last time a major hurricaine will cause this much damage. I donated to help. My former company sent semis of donated items, along with water, food, etc. Many times it was impossible to distribute these items properly because of the hoarding by the strongest.

I have a ton of compassion for those who lost everything!

[RJB1180]

IR only listen to Fox news, so we know what he heard!!

Sorry in advance for the low blow but you walked into that.

As a civil engineer, I can tell you that rebuilding new orleans is throwing money down the toliet. LA in general has desimated the wetlands that used to protect the city and could absorb the brunt of the waves.

The same goes for all the people on the barrier islands in fla, NC, NJ etc. These million dollar homes will be smashed and then they will want fed. funds to rebuild when they knew they are building on a sandbar that nature created to shift.

Sorry for OT but, it is a major issue that most people ignore

[sweeps]

This thread has taken a bizarre turn...

[Broken Arrow]

Originally Posted by safari

The inerest earned is taxable, but don't forget that the student loan interest paid is tax deductible (in most cases). So this is pretty much a wash.

Not if you owe as much as I do.

Also, I realize that disaster could strike anyone, including me, but again, it's all situational. For example, I do not live in Florida or New Orleans, so while the example holds true, it does not hold true for everyone, including me.

I think, in the end, we're all debating for what the answer is, and we all have different ones... but that sounds about right to me because I honest believe that it depends on what your risk tolerance and what your perceived probability of being exposed to any certain kind of disaster is.

That's all.

yeah, and what the heck does T.O. mean he overslept?! get on the d@#n field already!


(figured it doesn't much matter anymore)

[LuxLiving]

Exactly BA - We are happy with a small amount of cash on hand, more in the local bank, stepping up the amounts in our Emergency Stashes a bit on each remove. There is more further away, just to keep our hands out of the cookie jar!

Not every person will have the same 'bug out' needs. The thing is to consider the fact that we might need to and prepare for OUR conditions.

Flashlight and tennis shoes by the bed. Tanks always topped off, cash on hand, food & water supplies. Check and Double check!!

To Do List: More Batteries and waterproof matches

[lrjohnson]

Originally Posted by RJB1180

IR only listen to Fox news, so we know what he heard!!

Sorry in advance for the low blow but you walked into that.

More confused now. Who is IR?

[TinyFish]

"The inerest earned is taxable, but don't forget that the student loan interest paid is tax deductible (in most cases). So this is pretty much a wash."

Well, not at certain earning levels it isn't.

I didn't mean to turn this into a thread on the rights and wrongs of Katrina. If it makes anyone feel better, take my example as purely hypothetical. Sure, some people took advantage, and some people who could have evacuated did not. But, just going by likelyhoods, I'll bet there was at LEAST one person who did not evacuate partly due to not having ready money.

A baby emergency fund could prevent you from being that (possibly hypothetical) one person.

-TinyFish

[The Budget Man]

The emergency fund would be nice BUT when the emergency came you would still be paying off the debt.

When an emergency does come you need the smallest debt possible so that you can survive the cash crisis.

Many a person has lost their job and then been in critical problems because of the debt repayments.

Now since there aren't many emergencies that require $20K. I'd get the debt down and then get stuck into savings.

Enjoy Your Money
The Budget Man

www.thebudgetman.com
The budgeting program that works for me and might be of interest to you!

[Budgeteer]

Definitely given the constraints that you don't have a CC, don't have any assets to tap, etc, the 20k emergency fund is the way to go. In real life, most people have some kind of access to an emergency loan if needed.

What I usually advocate is for people to establish a small emergency fund, then work on paying down 'bad' debt (meaning, the really bad debt), then build up their emergency fund more, and finally pay off 'good' debt. Obviously I use that term a little lightly. But being able to borrow 20k at 5% is pretty hot, and as you move forward in your financial life you may find yourself wishing you could get that loan back...

Also realized from this thread that I should have a stash of cash at home. Wonder how much would be good?

[Budgeteer]

Originally Posted by The Budget Man

The emergency fund would be nice BUT when the emergency came you would still be paying off the debt.

When an emergency does come you need the smallest debt possible so that you can survive the cash crisis.

Many a person has lost their job and then been in critical problems because of the debt repayments.

Now since there aren't many emergencies that require $20K. I'd get the debt down and then get stuck into savings.

Sorry, I had to post again to point out that I think this is really the wrong way to look at things. Let's say hypothetically that you have $1000 in living expenses every month and on top of that you pay $200 for your student loans. So you take your $20k and pay off the loan; now you just have $1000 in expenses every month.

Later that day your boss says, "you're fired." How exactly are you going to pay your living expenses? That extra $200 a month that you aren't paying makes very little difference, while not having the $20k makes a gigantic difference. Obviously there are in-between scenarios that are more optimal, but given the choices I don't think it's close.

Not having an emergency fund places you in serious financial risk, while paying off a fixed, low-interest loan does very little to reduce your exposure to risk.

[tinapbeana]

Originally Posted by Budgeteer

Also realized from this thread that I should have a stash of cash at home. Wonder how much would be good?

my vote on cash:

* gas money for a hard day's worth of driving (say 800 miles)
* enough to pay for a week-long hotel stay anywhere in that 800 mile radius
* enough to buy one week's worth of food and water for anyone in the car with you
* sad but true: possibly some bribe money