Balancing EF and Debt

[Bob B.]

Assume the following:

CC debt of 10K
Of that CC debt 1/3 is high interest (8.9%) and 2/3 is around 5.5%
Current EF is 1.9K
Long term EF goal is 9K
Minimum monthly payment on CCs is $520
At the end of the month when all obligations, needs and wants are met, I have $300 left over.
That $300 can be spent in part or entirety on accelerating debt payment or building the EF.

How would you advise me to split that $300 between debt repaymnt and building the EF?

Thanks in advance for your replies.

[disneysteve]

I think about 2K is a good solid starter EF. That should cover most emergencies. I would stop where you are with the EF funding and put all excess cash toward paying down the debt, highest interest first. If something happens that results in spending some of the EF, then go back to funding it back up to 2K before resuming the extra debt payments.

[fe2o3ez]

I think about 2K is a good solid starter EF. That should cover most emergencies. I would stop where you are with the EF funding and put all excess cash toward paying down the debt, highest interest first.

I agree, with one caveat. In thinking about your starter EF, I would look at your insurance deductibles. Make sure you have enough in your EF that an accident\fire\emergency won't put you behind on daily bills - that's why we carry insurance. But insurance usually has a deductible that must be paid, and you will want to make sure you can cover that at a minimum, until you pay down debt.

I would say if your health emergency deductible is $100, and your car deductible is $500 and house\renters is $1000, then you are probably all set with $1900. (Just don't drive your car into your house and break a leg! ) However, if your homeowners insurance has a deductible of $2500, you may want to put a little more in your EF.

Just a thought.

[Hector]

put that $300 towards credit card with highest interest. There is not point in having bigger EF when you have credit card debt. If emergency comes which requires more than $1900, you can use credit card to take care of it. No point in bumping EF till your credit cards are paid off.

[jpg7n16]

All $300/month to the 8.9% CC. Put tax refund there too (if you get one).

I usually say 1 mo expenses as starter EF. So I agree with the above, $2k sounds about right.

[Bob B.]

If emergency comes which requires more than $1900, you can use credit card to take care of it.

Thanks for the response. I've been cautioned, with good reason I think, to avoid using CCs for emergencies.

[Bob B.]

All $300/month to the 8.9% CC. Put tax refund there too (if you get one).

Tax refund has already been deposited, and applied to 8.9% CC. Thanks for the response.

[fe2o3ez]

Thanks for the response. I've been cautioned, with good reason I think, to avoid using CCs for emergencies.

I agree. Usually makes a tough situation even worse.