It’s the proverbial catch-22. You work hard to pay off some of your debts. But every time you pay off a little bit of your debt, you have an emergency and you go back into debt. You never seem to gain any ground on paying off your debts. How can you get your head above water when life keeps dragging you back under like an anchor?
The answer lies in establishing an emergency fund. Setting aside a small amount of money specifically dedicated for emergencies can completely change your financial picture and reverse your debt progress (or lack of progress in this case). If you can get as little as $500 to $1,000 saved up for emergencies, emergencies will suddenly stop happening. Now you can cut up your credit cards with confidence and start attacking your debts without the fear of needing them someday to cover emergency expenses.
Now I know you’re asking yourself, “How in the world do emergencies just stop happening just by saving up a few hundred dollars?” It’s an amazing thing. An emergency fund is like Murphy repellent. When you have money waiting to fix things caused by Murphy’s Law, it’s not as much fun for Murphy to mess with you anymore. So when he gets to your house, he just keeps on walking (over to your broke neighbor’s house instead).
But even if Murphy does come knocking on your door, you’ll be ready. Do you know what you do when an emergency happens and you have an emergency fund in place? You just pay the bill and start saving up to replenish the emergency fund. It’s a beautiful thing to witness.
I know it’s easier said than done, but if you want to make progress on your debts, you have to make your emergency fund a priority. So get that small emergency fund started, then pay off your debts. Once they’re paid off, you can build up a full-sized emergency fund of 3-6 months of expenses. It’s a lot easier to get there when you don’t have those debt payments weighing you down. And it’s a lot easier to pay off debts when you’ve got some insurance there to help you handle emergencies without going deeper into debt.