Smart or Dumb: Using E-Fund Money to Pay Off Debt?


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?

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8 Replies to “Smart or Dumb: Using E-Fund Money to Pay Off Debt?”

  1. Don’t touch the emergency fund. I know it’s tempting to, but you’re not saving yourself much time and having that cushion is SO valuable, even if just for your sanity – you don’t want to be out of debt but right on the edge again.

    1. You’re so right about sanity. The main reason I started getting so serious about debt payoff is because having debt was messing with my mental comfort. I don’t want to go back to that!

  2. I’d say leave the money in your E-fund. It sounds like you already know what you want to do! Like you said, you’ll be debt-free by the end of June anyway, so what’s the rush? Having $2000 in your E-fund puts you in a way better place than having $1000 would.

    1. Ah, you’re right. I secretly didn’t want to use that money. It’s not like it’s a big time difference so there really is no rush. I just get so excited about debt payoff, hahaha!

  3. I second keeping the e-fund. That’s a nice little cushion for you to keep around. Think of how soon that fund and other savings will be growing when your loans are gone. Exciting!

    1. Seems like everyone is on the same page. I can’t wait to be saving at a similar rate to what I’m paying off- imagine saving 4K in one month!

  4. thefibard4280 says: Reply

    Emergency Fund isn’t needed since you are mad hustling with several sources of income. I would keep $1000 in it and pay off that debt! Don’t spend too much in San Diego and your E-fund will fill back up quickly. Reserve a set amount for each trip and don’t spend any more. Ex. San Diego – $250 Roadtrip – $200 Vacation – $300. Just pretend you are still in debt while building up your IRA (use a traditional and you will see a bigger tax return next year), and the money will fill up fast. If you pass up $3000 go for $5500 to get the yearly max. Traditional IRA will mean 3000 = $450 reduction of taxes. $5500 = $825 reduction if you are in the 15% tax bracket. Keep it going!

    1. Thanks for stopping by! I definitely feel having an emergency fund is needed for everyone. Life is full of surprises! I think I’ll wait and see how San Diego goes before I go around spending all my money. Better safe than sorry in my book!

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