4 Reasons Why You Need an Emergency Fund (Even if You Have Debt)

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Did you know that 62% of Americans can’t pay for unexpected expenses?

Think of all the times a surprise expense came up in your life. Maybe you had a medical bill, car repair, lost your job, or some other emergency expense that came up. How would you pay for it?

Just this weekend, I took my car to the shop – $650 in repairs. No, I didn’t panic. I paid it in full. Because I have an emergency fund for situations just like this.

When I quit my terrible job without another one lined up, I knew I would be okay because of my ample savings in my emergency fund.

If I get a surprise wedding bill (hopefully not!), I will write a check from my emergency fund.

Needless to say, I rely on my emergency fund for security. As much as I try to anticipate expenses, sometimes things are out of my control.

Here are 4 reasons why you need to start an emergency fund today, even if you have debt.

  1. You can’t simply hope for the best

I have a friend who has been in financial despair. Her only plan of action was to cross her fingers and hope her electricity doesn’t get shut off. Insert face palm.

Remember that phrase, “hope for the best, plan for the worst”? You can hope all you want that you won’t have any major expenses come up, but wouldn’t it give you more peace of mind knowing that you could handle any emergency that came your way?

With finances, you have to remember that you have control. In general, you can’t just hope for the best. You need a plan of action. And you’ve got to change some habits.

  1. A credit card is not a substitute for an emergency fund

I hear this a lot – “I’ll just put it on my credit card and pay it off later.” Double face palm.

Credit cards are dangerous if you allow yourself to do things like this. How would you actually pay off your credit card without busting your regular budget? It could take months, if not years to pay off, plus you’re paying a ton extra in interest.

If this is a large amount that you aren’t able to afford, this could wreak havoc on your credit score. With credit, you should never purchase anything you can’t actually afford, and that includes emergency spending.

  1. You can’t get out of debt by taking on more debt

Many people with debt assume that every cent they have extra should go towards debt. While it’s good to focus on paying off debt, you still need to have some savings.

Just as credit cards aren’t a substitute for an emergency fund, having to take on credit card debt from an emergency doesn’t get you any further in your debt repayment.

  1. Security and peace of mind is worth more than anything

Different financial gurus will give you different advice (like I’m about to…) but I highly recommend saving enough that is comfortable for you.

Many personal finance guys, like Dave Ramsey, recommend only keeping $1,000 in an emergency fund until you pay off debt. While I see where he is coming from, $1,000 isn’t all that comforting to me. Even though I know it would make more sense mathematically to put extra money towards my student loans, I feel more comfortable with a larger emergency fund.

How I built my emergency fund

When I graduated, my brother-in-law (a finance guy) suggested an online Capital One 360 Savings account to me. I started one and I still use it and love it. In fact, I just added my fiancé to the account so we can start saving together.

An online savings account might sound weird but let me explain. You can do all the same things with an online account (like deposit checks using an app, withdraw from ATMs, etc). They give you a better interest rate than physical banks because they have no brick and mortar store to maintain.

I actually enjoy the fact that it’s online because it is convenient, but not too convenient. I don’t have a debit card attached, so unless I need it, that money is untouchable, but accessible. If you tend to spend whatever is in your bank checking account, I highly recommend looking into an online account.

I have multiple bank accounts, but honestly, CapitalO ne is my favorite because it lets me set savings goals. I link it to my regular bank account and have money automatically sent to my emergency fund. It’s so easy and it keeps me on track and organized with my goals.

Capital One is doing an awesome deal right now that if you sign up here with my referral, you will receive a $25 bonus if you open an account with at least $250 in it. Yay for free money!

How much money do you need in an emergency fund?

Look at your expenses. If you don’t have a car, maybe you don’t need such a big emergency fund. If you are debt-free, I would encourage you to build an emergency fund worth 3-6 months of expenses.

If you have a lot of debt, saving money might be a challenge for you. I would encourage to aim for at least a $1,000 emergency fund for an individual.

An emergency fund is important, but it isn’t easy to fund it if you’re struggling with debt. Eliminate as many expenses as possible and pay yourself instead via your emergency fund. Set a realistic, but ambitious goal of when you can achieve a fully stocked e-fund.


In short, an emergency fund might seem daunting to fund, but ultimately, it has been my hero more than once. In order to get any finances in order, having an emergency fund is one of the first things you need to do.

How do you manage your emergency fund? How many times have you had to use it?

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