Is It Better to Save an Emergency Fund Before Paying Off Debt? The Truth Revealed...

A new client recently asked me why she should have a $1,000 emergency fund first before paying off her high interest debt. We had a great conversation about how emergency funds can create a financial cushion. This blog post was created to share that an emergency fund can help you break the cycle of always playing catch up with your debt. 

If you’re on a journey to financial freedom, you’ve likely asked yourself whether you should pay off debt first or build an emergency fund. While paying off debt is crucial, having an emergency fund should be a priority. Without it, you risk falling back into the debt cycle when unexpected expenses arise. Let’s explore why saving for emergencies before tackling debt is a smarter financial move.

Breaking the Debt Cycle

One of the biggest reasons people struggle to get out of debt is that they rely on credit cards or loans for emergencies. A sudden medical expense, car repair, or job loss can easily derail your progress if you don’t have savings. An emergency fund serves as a financial cushion, preventing you from accumulating more debt when life throws surprises your way.

How an Emergency Fund Protects You

A well-established emergency fund offers several benefits:

• Reduces reliance on credit: Instead of swiping your credit card for unexpected expenses, you can dip into your savings.

• Provides peace of mind: Knowing you have a safety net reduces financial stress and allows you to focus on long-term goals.

• Prevents high-interest debt accumulation: Credit cards and personal loans come with high interest rates, making it harder to pay off what you owe.

How Much Should You Save?

The Dave Ramsey 7 Baby Steps recommend starting with a $1,000 emergency fund. On the other hand, some financial experts suggest saving up to a full month’s take-home pay—and honestly, that’s what I had set aside while I was paying off debt. Whatever amount you choose, the goal is to have enough to handle small emergencies without throwing off your debt repayment plan. Once you’ve paid off all your debt (except your mortgage), you can grow your emergency fund to cover three to six months of basic living expenses. This acts as a form of self-insurance, allowing you to pay cash for unexpected costs instead of relying on credit.

How to Build an Emergency Fund While Paying Off Debt

1. Pause aggressive debt payments temporarily – Minimum payments keep your accounts in good standing while you build your safety net.

2. Create a budget – A clear, realistic budget helps you keep track of what’s coming in, what’s going out, and how much you can set aside for your emergency fund.

3. Cut unnecessary expenses – Redirect money from non-essential spending toward your emergency fund.

4. Use windfalls wisely – Tax refunds, bonuses, or side hustle income can help you quickly build your fund.

The Long-Term Impact

Once you have an emergency fund in place, your debt repayment will be more sustainable. You’ll be able to stay out of debt instead of constantly playing catch-up when unexpected costs pop up. With that financial cushion, you won’t need to rely on credit cards or loans every time life throws a curveball. This stability allows you to stick to your debt repayment plan with fewer interruptions, giving you steady momentum. Building savings before aggressively paying off debt sets you up for long-term financial success, confidence, and security.

Final Thoughts

Achieving financial freedom requires more than just paying off debt—it requires building a solid foundation that keeps you from falling back into old habits. That foundation starts with an emergency fund. While it might feel counterintuitive to save when you're eager to eliminate debt, having a safety net empowers you to break the cycle for good.

Think of your emergency fund as financial armor. It shields you from the stress and setbacks of unexpected expenses and helps you make steady progress toward your goals without backtracking. It turns emergencies into manageable inconveniences instead of crises that derail your plans.

By pausing aggressive debt payments just long enough to build your initial savings, you're creating a system that supports your long-term success. It’s not about choosing between saving and paying off debt—it’s about doing both strategically. Start small, stay consistent, and remember: every dollar you save is a step toward freedom, peace of mind, and a future where you’re in control of your money—not the other way around.

So don’t wait for the “perfect” time to start your emergency fund. Begin today, even if it’s just with a few dollars. Your future self will thank you.

Hi! I'm Jeannette Fennel. As a certified financial coach, I encourage and empower Millennials to take control of their finances. I focus on financial goal setting, budgeting, and debt payoff strategies. I love seeing clients make changes in their lives and crush their goals. Along with coaching clients one-on-one, I also run an Etsy shop with instant downloads called FennelBudgetingShop.

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