Should You Use Emergency Fund To Pay Off Credit Card Debt?
Is It Wise To Use Emergency Fund To Pay Off Credit Card Debt?
Keeping money aside as emergency fund is a great way to cover surprise expenses without taking out high-interest debt. These funds also help during greater periods of distress like job loss or a health crisis. On the other hand, having a lot of high-interest debt, like credit card debt can hurt the financial well-being of a person. Thus, deciding to use an emergency fund to pay off credit card debt can be a tricky thing.
There are a lot of things that need to be considered before making the decision, thus, here’s some information that can help.
Should You Use Money from Your Emergency Fund To Pay Off Credit Card Debt?
Is It Wise To Use Money From An Emergency Fund To Pay Off Credit Card Debt?
In a CBS report, Krisstin Petersmarck, investment advisor representative at Bridge river Advisors in Bloomfield Hills, Michigan explains the intricacies of using emergency funds to pay off debt. According to her, a solid analysis needs to be applied to the amount of the emergency fund a person is looking to use and how much credit card debt has been accumulated.
"You do not want to completely deplete your emergency fund," Petersmarck says in the report.
She suggests that monthly expenses should be calculated as it is important to maintain at least three months of expenses in the savings account as an emergency fund. The rest can be used to pay off credit card debt.
Should You Build an Emergency Fund First Before Paying Off Credit Card Debt?
While it is generally a smart idea to plan for the unexpected, ignoring debt can have negative long-term monetary consequences.
In a CNBC Select report, Sallie Krawcheck, co-founder and CEO of the digital investment platform Ellevest, says while it is great to have an emergency fund to fall back on, it may not be worth delaying payments of credit card debt.
Since credit cards charge high-interest rates, it costs customers money every single day the debt goes unpaid. Thus, for people who don’t have an emergency fund and have credit card debt, it is best to pay off the debt first as it will save more money in the long run, as per Krawcheck.
Thus, in conclusion, choosing to pay off credit card debt using an emergency fund depends on how much money has been set aside for emergencies. For those who do not have the advantage of an emergency fund, there are some other options available to eliminate credit card debt faster
Other Ways to Pay Off Debt
The first is an option to pay off credit card debt is signing up for a debt relief service. In this, service providers negotiate interest rates or loan balances with lenders on behalf of the borrowers. The debt relief service providers also set up payment plans that are effective and affordable.
The next option may be to take out debt consolidation loans. With this a well-qualified borrower can use a new loan with a lower interest rate to pay off the high-interest debt. Options like personal debt consolidation loans and home equity loans can be considered for this, according to the CBS report.