emergency fund or pay off debt?

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Hi,

DH and I are in the middle of a mammoth debt repayment mission. We started a year ago and have managed to clear 25K by adopting the snowball method. Not all of the debt was 0% so we decided to go hardcore. We throw 2.5k a month at the debt and each month the interest payment gets less, and more comes of the actual balance. Happy with this.

My concern is that we don't have an emergency fund. All of the spare cash goes on paying the debt. I was ok with this as we will be able to save a lot when the debt is all paid ( about 20 months from now), however I am worried that we don't have a buffer if something goes wrong - the fridge breaks etc.

DH think that we just carry on winging it, and that if we did need to replace/fix something, we could just use some the credit that we have created on one of our cards. We haven't used any cards at all since starting our debt free journey

I think that we should ease up on the payments slightly for 2-3 months to create a pot of about £1500. If we don't need it then we can pay it off the debt at the end

What would you do?

I'm with your husband on this.

Carry on paying it off, if something goes wrong, deal with it then by stopping that month. Well done!

I'm sure you are aware but do prioritise debts with higher interest first, though if you have small amounts in certain places, it's a huge boost psychologically to pay something completely off. I wish my clients were doing as well

Are you a debt adviser @mitogoshi

Hi, this is a tough one as you are on a roll with the debt pay-off. I’m in a similar position. We paid €32k off in one year. Two years left. All one loan (house renovation) and we don’t have any other loans (no mortgages or loans on our vehicles). However, we also only have €5k in savings/emergency fund which for a family of 5 is not enough. I’m leaving that sit in a CU and hoping I won’t have to access it but the washing machine isn’t spinning. Got a local guy to look at it yesterday and he said he’ll be back in a week with a pump for it. Hoping it won’t cost a fortune or that he doesn’t say I actually need a new machine but at least I have money there to cover it if I do. It’s hard going - isn’t it? But I have to keep reminding myself that, by putting one foot in front of the other, we will get there… then I need to start saving equally aggressively to get kids through college etc. but I will never borrow so much again 😳
The very best of luck on your journey…

If your fridge breaks will it cost more than £2.500 to get a new fridge?

You are paying of £2.500 each month and surely you can wait, at most 31 days to get a new fridge

With you paying of debt - how is your credit score?

I’d follow the Dave Ramsey method and get a small emergency fund of £1000 pounds.

You are doing amazing!!! Well done!!

Your DH is right. If you put aside savings, you'll earn 5% interest. But if you have interest charging debt, it's likely to be at least 20%, so an emergency fund of £1000 will cost you £150 per year to run.

If the fridge breaks, just buy one out of income and reduce your debt repayment (make sure you still pay the minimum). If you can't manage this, pay for the fridge on the credit card and spread the cost over a couple of months.

Also, if you haven't checked since you started your debt free journey, your reduced debt might mean you'll qualify for a new balance transfer offer, so that's always worth looking at every few months.