28 Ways to Save for an Emergency Fund
Develop a Savings Plan
I have been paying extra on two credit cards, and I like to see the balance go down. If I want to build savings like Dave Ramsey suggests ($1000), I would have to reduce payments to the minimum for about seven or eight months. What do you suggest? Should I attack the credit cards or be safe and build emergency savings?
I would pay the minimum on the one with the lowest interest rate. Pay extra on the one with the highest interest rate and start the savings with the extra money. Without a savings, you'll never break the habit of using the cards. In an emergency, you'll have no choice but to use the cards. If possible get a temporary part-time job or sell "stuff" to help build up the savings.
If you are following Dave's program, you know to save the $1000 first! Make minimum payments to the credit cards and have a garage sale, sell stuff on eBay, get a part-time job, work overtime, etc. to get the $1000 fast. If you don't have the emergency fund, "Murphy" will come knocking at your door. The emergency fund is your cushion so that if an emergency happens, you aren't going back into debt.
When you compare the interest charged on your credit card to the interest gained in a savings account, most experts agree that you should pay your credit card off first. You may have a few setbacks if emergencies do occur, but in the long run, you will save more money by paying down your credit card first.
You ask a question about emergency savings and credit card debt that most of us face. While some may disagree, I suggest you:
Unless you can pay the credit cards off completely within a few months by paying the extra, I'd go for the emergency savings. If not and an emergency comes up, you'll have to use a credit card to pay for the emergency, and then pay interest on it too. That's a vicious cycle.
Lisa C. in Portland, OR
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