Five Reasons NOT to Pay Debt With Your Emergency Fund

My emergency fund is calling me.  It wants to be used.

As I scanned our bank accounts today, made a few transfers, and updated my progress on my 2009 financial goal, I started getting itchy.  There is a decent amount of money in my emergency fund.  We worked hard to save that money, and it seems like it should be doing something other than sitting in the bank.  Doing nothing.  I could transfer that money to my debt and make a substantial dent in the amount we currently owe.

So why not?

  1. This is not an emergency.  It is easy to start thinking that a debt is an emergency, but if you have had this debt for a while and you incurred it on things that weren't emergencies, the debt itself isn't an emergency.  I have a solid plan to pay off this debt within the next 10 months, and I'm on track to do it. 
  2. There isn't a lot of money in this emergency fund.  As I said before, it is a decent amount…enough to pay the deductible if we're in a car accident, enough to pay for a new hot water heater if ours blows up, enough to pay for a couple of plane tickets if we unexpectedly have to fly to a family emergency.  If I had thousands of extra dollars, then maybe I should pay off my debt with it.  But that's not the case here.
  3. The emergency fund gives me options.  If we move and need to buy a washer and dryer, we don't have to put it on a credit card.  If a child gets sick and I need to scale back my work for a while, I can.  If the Navy forgets to pay my husband, we'll still eat.
  4. Our tax bills can be difficult to predict.  I am self-employed and my income varies dramatically.  Deployments and TDY can lower your taxable income.  The one time we DITY moved, we ended up with a tax liability for that (did you know that counts as income?)  After years of getting back huge refunds, we have change our withholding so that we come as close as possible to getting the right amount withheld.  However, with all the variables in our life, I always hold my breath as we do our taxes.  This might be the year that we owe, and what if it is a lot?
  5. Having a well-stocked emergency fund gives me peace.  There are so many stressors in life, and I like the comfort that comes from having a small stash of money.

I admit, I can easily think of 5 reasons why I SHOULD put my emergency money towards debt.  However, I'm pretty sure that the 5 reasons listed above are more important.  Paying off my debt isn't a sprinting race, it is more like a long, uphill hike.  If I stick to the slow and steady course, I'll eventually reach my goal and I'll still have my emergency fund for, well, emergencies.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.