Welcome back for another round of Smart or Dumb! Smart or Dumb is a series here where I present a financial question I have to my readers. I’ll present the question and you dear readers, must choose definitively one side, Smart or Dumb. You can’t waffle in between or play the devil’s advocate. You pick and then you explain why you’ve chosen this. It’s a game I’ve played many-a-time in my personal life and I love it!
As some of you may know I am thisclose to being debt free. My remaining loan balances sits at $3,180. This is exciting stuff! I know almost for a fact that I will be able to put $2000 towards my loans this month. I have gotten a slight pay bump from both my catering job and my nonprofit job this month and I am expecting a check from my mother for $500 from an account she had set up in my name a few years ago. With my frugal lifestyle and eye on the prize, I’m hoping to hit that 2K mark even though I’m going to San Diego (aka a money pit) in two short weeks!
Let’s assume that $2,000 is accounted for. That leaves me with $1,180 left in debt. So close to the end! So close in fact that I am tempted to use some of my emergency fund money to knock that remaining balance out and be debt free by the end of May.
To review: I have a $2000 emergency fund that I have not touched in any way, shape or form since I got truly serious about my debt payoff. Every personal finance blogger out there will tell you the importance of having an emergency fund. I am one of them! I love having a cushion at the ready for whatever may happen. Crazy and random things happen to us all the time. Having no back-up cash is scary and risky and not something that I want for myself.
However, if I took $1000 out of my emergency fund (and came up with the remaining $180 through an extra catering shift and cutting back severely), I could be debt free and still have one thousand dollars in my emergency fund.
Let’s take a look at my other financial goals for the rest of 2015. Now that debt freedom is looming large (in the best way!), what do I plan to do with my money for the rest of the year?
1) Save and invest $3,000 in a Vanguard account- the start of my early retirement money!
2) Go on a weeklong road trip with my boy friend in the first week of September
3) Go on a vacation with my best friend in October to celebrate her birthday and my victory over debt
So now, back to my Smart or Dumb of the moment. My main concern that it’s dumb is that I’ll pay off this debt and then tragedy will strike and I will be unprepared, thus pushing me back into debt (via credit cards.) I am also worried about taking some time to replace that emergency fund- it’ll probably take me all of June and then some of July to replace it, as my investing plans are my priority.
Do I want to leave myself with such a small e-fund? Something is certainly better than nothing but is $1000 enough? The flip side too, is that I will be debt free by June at the latest anyway. If I decided to do it, I’m not saving myself a huge chunk of time- just about three weeks.
So what do you think readers? Is is Smart or Dumb to tap into my emergency fund to pay off my remaining student loan balance?
Kara Perez is the original founder of From Frugal To Free. She is a money expert, speaker and founder of Bravely Go, a feminist financial education company. Her work has been featured on NPR, Business Insider, Forbes, and Elite Daily.