Emergency Fund vs Debt: What Should Come First?

The Dave Ramsey Approach: Emergency Fund First

• Build $1,000 emergency fund first
• Then attack debt with intensity
• Build full 3-6 month emergency fund after debt payoff
• Philosophy: Prevent new debt during payoff

The Mathematical Approach: Debt First

• High-interest debt (>10%) should be prioritized
• Emergency fund earns ~3%, credit cards charge 20%+
• Every month of delay costs you money
• Use credit cards for true emergencies

The Balanced Approach (Recommended)

• 1. Build small starter emergency fund ($500-$1,000)
• 2. Pay off high-interest debt (>10% interest rate)
• 3. Build emergency fund to 3-6 months expenses
• 4. Pay off remaining lower-interest debt

Consider Your Situation:

Prioritize Emergency Fund If:

• You have irregular income
• Your job is unstable
• You have dependents
• You tend to use credit cards for emergencies
• You have high stress about financial security

Prioritize Debt If:

• You have stable income and job
• Your debt has very high interest rates (>15%)
• You have family support for true emergencies
• You're disciplined about not creating new debt

Emergency Fund Size Guidelines:

• Single, stable job: 3 months expenses
• Married, dual income: 3-4 months
• Single income household: 6 months
• Irregular income: 6-12 months

Pro Tips:

• Start with at least $500 no matter what
• Keep emergency fund in high-yield savings account
• Don't use it for non-emergencies
• Replenish immediately after using
• Consider side hustles to fund both goals simultaneously