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The other day I was reading an article that basically said “if you have an emergency fund you must be broke.” It was an article on people who lived a very frugal lifestyle, and paid cash for every purchase. And since they paid cash, they didn’t need to worry about an emergency fund.
On the one hand, I admire them. They deserve a lot of credit for staying away from credit card debt. But on the other hand, I found their comments a little arrogant.
Hey, if I want to have an emergency fund, I’ll have one, people. It doesn’t really matter what you “think” about those of us who are less than perfect!
OK, I’m not really that mad at them. But the reality for many people is that money is a daily struggle.
And the solution is not perfect.
When you have debt, you find ways to survive. You can argue that racking up credit card bills is dumb financially, and people need to learn how to live within their means. I won’t disagree.
But what’s done is done.
So having an emergency fund is NOT a stupid idea if you have credit card debt.
Sure, if you look at just the numbers, you’re better off putting every penny towards paying down high interest debt, rather than earning a small amount of interest in some type of savings account. Your money would be working more effectively, again according to the numbers, by getting rid of the high interest debt first.
For example, most people will pay somewhere between 10-25% interest on their credit cards. And earn only about 1-3% from a savings, checking, or money market account.
So it doesn’t look very appealing, right?
Because most people don’t keep paying off their debts. Especially when money gets tight! So you need to start saving – somehow, some way – so you don’t stay stuck in the debt trap!
And much more important than the numbers is the lessons an emergency fund teaches you, such as how to: Save.
Pay yourself first.
Yes, even with lots of debt you should still pay yourself first. It doesn’t have to be a lot.
Just $10 a week can make a difference. And at the end of the year you’ll have $520 saved up. Save $20 a week and you’ll have over $1,000!
Buy only what you can afford.
If you’re focused on saving, you’ll be less interested in spending. And more conscious of how you spend!
Have a complete plan.
If you don’t have any money saved up for emergencies, you don’t have a plan. Even better – set a goal to save $500, $1000, or $5000 – while paying down your debt. Then you’ll have a real plan!
Even with a plan, have a backup.
Life happens. And at the worst times, of course. So if you have a down week at work, or need groceries, or have an unexpected medical bill or car repair bill, you can pay cash instead of using plastic.
Break the habit of using plastic.
If you spend your life paying off debt, you may never get around to learning these lessons!
Because despite what those “super savers” say, debt isn’t a prison sentence – you don’t need to punish yourself forever. And even if you did spend your life paying off your credit card bills, chances are good that it won’t work if you don’t have a plan in place.
If you’re always living financially from a position of weakness (owing more than you can afford) you’ll never understand how to tip the scales back in your favor.
The preceding article was written by Kris Bickell of Debt-Tips.com, a site dedicated to helping consumers find honest information and helpful tips for paying off credit card debt and living debt free.