Should You Use Your Emergency Fund to Pay Off Credit Card Debt?

April 4, 2007

If you had $10,000 of credit card debt and $10,000 in an emergency fund would you use the emergency fund money to pay down your debt?

My wife’s co-worker likes to spend money. She and her husband have accumulated a $10,000 credit card bill that they just can’t seem to pay off. The wife would like to use the money they have saved up towards the credit card debt but her husband is emphatic that they have an emergency fund to fall back on.

When the co-worker asked my wife for her advice she suggested using some or all of the savings to pay for the debt. She pointed out that a lot of the money they paid towards the credit card bill every month went towards interest. If they paid off the 10 thousand in debt they could put the same money they had been paying in credit card interest towards saving for an emergency fund.

The co-worker agreed that this seemed like financially sound advice; however her husband was set on having an emergency fund at all times. Having an emergency fund is a wise move but does it make sense to maintain this fund while paying high interest charges on the same amount of money to the credit card company? What would you do?


Will this article help you save or earn more money? Get others like it simply by entering your email address below. Your email is used only for delivering daily money tips and you can opt out of delivery at any time. Click here to see all your free subscription options.


Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

All posts by


27 Responses to Should You Use Your Emergency Fund to Pay Off Credit Card Debt?

  • tony

    the question is will they be discipline enough to not use their credit card again after they pay it off by using their savings? The other issue is, with the recession we are in, the paranoid banks are reducing people’s line of credit as they pay down balances! So we cannot depend on our credit cards for emergency. Personally, I do not trust banks. They are irresponsible with money that is why they have to beg for money from the government with the bailouts. And now they are holding on tightly to their cash.
    In this uncertain economic environment, if your income is not steady, hold on to your cash! Make the most payments on your credit cards and ride through this Great Recession. I wouldn’t use all my savings to pay off my credit card debt, but don’t pile more credit debt either.

  • Brandy

    I have a similar question….I have accumulated debt about 12800. I have closed all my cards and have had them reduce the interest rate and put me on a repayment plan. However they are about to go up and I can’t really get another credit card to do a balance transfer. My husband has a money market that has 15000. Should we use it to pay off my debt in order to make things easier and to be able to save more?

  • The Dude

    The most imprtant rule of personal finance is to pay yourself first. Pay your self first via 401k, IRA, Money Market, Savings, etc. Second, You need to need to create a savings acct at your local bank where you can walk in and walk out with cash in your hand the same day with out paying a penalty. The savings should be atleast $1000.00, but will vary from person to person. Then create an emergency fun that will cover 6 months of living expenses if case you lose your job. The emergeny fund should not be easily accesible like a checking. Try short term savings in which you do not have debit cards and checks.
    Continue to pay your credit cards, but examine every aspect of your credit cards and create multiple repayment scenarios. Choose the scenario that fits your income the best. Cut out unneeded spending and live below your means. If you find yourself always putting dining and entertainment, other intangible purchases on your credit card your living above your means and the debt will never go away. Create a budget and do not deviate from your budget. Consider putting high rate balances on cards with lower rates. In most cases the cards with the higher required minimum payments have high interest rates and/or large balances. Pay the card that is costing you the most per month ASAP while paying slightly more than the minimums on the others. Once a card is paid off roll the paid off cards payment in the payment your making on the next most costly card. Close the cards that have a high rate or annual fees or other ludacris fees.
    Remember that credit cards are unsecured and if you do defualt on one you will have to deal with collectors and your credit score might take a beating, but a high debt to income ratio can be worse than a low credit rating. Do not get suckered into using a Home Equity Loan or Line to pay off credit cards. If you cant handle the balance on your credit cards, you wont be able to handle it on a home equity product and you just made your unsecured debt secured thru your home and made foreclosures a serious concern

  • Jackson

    Thanks for sharing such great post, according to me there are numerous reasons when we need such emergency funds. By building an emergency fund you will feel more secure because you are prepared for the facing any financial crisis.

  • Credit Card Criticizer

    Of course, it is better and wiser to use emergency fund for paying off the debt. What’s the use of saving money on ambiguous purposes when you have a current danger of falling into credit card debt abyss?

  • pf101

    It sounds like they have bigger problems. If they can’t get control of their debt then odds are good that if they pay off the debt with the emergency fund they would just run up the debt again and then have debt and no emergency fund.

    What they really need to do is get on and stick to a budget so they can get out of debt AND keep their savings.

  • Wealth Building Lessons

    I think they should pay down atleast half the balance with their savings and then try to build it back up.

    when they’ve acheived that, they should pay off the remaining 5k and again rebuild the emergency fund.

    I think the wife might have a spending problem if the husband isn’t willing to use the emergency fund to pay off high interest debt.

  • Ben

    Thanks for the feedback, some good points to consider. Now we just have to get the message across to this couple.

  • Tim

    you’re fixing the symptom and not the problem.

  • Lazy Man and Money

    Of course you should use emergency funds to pay of credit card debt if you credit card interest rate is more than you can make in your emergency funds (which is the case probably 97% of the time). If an emergency comes out after you’ve paid off your credit card, you can just put more on the credit card again. Worst, worst case, you’d have to get a cash advance (if it’s an emergency that only takes cash, I can’t think of one) and that would be a hit.

    As Jeremy points out, “I’m sure they can build it back up but if an emergency does come up fairly soon after it drops to zero then what? You have to use the credit card to fund that emergency and you wind up in the same situation.” If the worst case scenario is to be back where you started, is that really a bad thing? The average case scenario is pretty helpful, and best case is a big savings.

  • Tim

    also, have they looked at calling the cc company to reduce interest rate? have they looked into applying for a 0% BT card?

  • Tim

    the first thing they need to do is seriously talk to each other about spending. if the wife likes to spend money, erasing the $10k debt with emergency fund is probably the worst decision they could make. First, the emergency fund will be gone. Second, the chances are very high that she will max out the credit card again if the balance goes to zero right away. if they are only able to pay interest on the card, they will not be able to replenish the emergency fund again. this indicates there are some other mitigating factors which we do not know about as others have noted.

    other mitigating factors for having the e-fund: are either in a high risk job category; health issues; car issues; house repairs in the near future?

    e-fund are designed so you don’t have to rely on cc or other high interest forms of credit in case of emergencies. the last thing you need is to charge an emergency without having way of paying it off. if you had 12 month 0% interest, i can see using that as an e-fund since you have some breathing space, but that diminishes as time goes by.

    i’d also recommend, if anything, only a max from emergency fund $5k towards the cc. but they need to look at their position and determine when they can replenish it and if they can afford to do so. $5k will ensure some breathing space. the glaring concern is the part about that she likes to spend. that is something they need to seriously look at. paying the cc bill is an easy band-aid fix that won’t solve the underlying issue: uncontrolled spending. i’d only pay the cc after they have resolved this issue and have established a plan to and to start to solve the problem. don’t do it after you’ve paid the cc; otherwise, it is like a new year’s resolution.

  • Zachary

    I say go 50-50 and pay off $5000 of the credit card debt to start.

  • Golbguru

    Like others have mentioned above…ground reality will affect the opinion on what is the best way…but personally, I have done just that with almost a similar amount and when I look back…I think it was a wise decision (considering my situation).

    Irrespective of what the ground reality is…a quick opinion is to pay off a major chunk with the cash in hand…may be keep $1K or $2K for *emergencies*. The answer won’t be so simple if they don’t have a reliable source of income that fills up the emergency fund regularly….reserve cash will play pivotal role in that case.

  • Sherry

    Since we don’t know the whole story, maybe he likes to spend money also. This couple hasn’t shown responsibility just because they have been able to accumulate $10,000 in an emergency fund. For all we know this $10,000 could be all the money they have for their future savings and retirement accounts and they are calling it an emergency fund.

    I can see why the husband would be hesitant on using the savings to pay it off. Using this money to pay off the credit card debt would appear to the wife (if it’s really her doing all the spending) that she could now spend more money with having all debts paid in full and repeat the same foolish mistakes.

    This couple needs to sit down and take a more serious look at how they are handling their finances, make an agreement to stop spending and make large payments to eliminate the debt to at least half and then maybe the husband would be willing to use $5,000 of the emergency fund to finish paying the credit cards off. Of course, with an agreement they both change their spending habits in the future.

  • limeade

    I like to always have at $2000 in cash. Most any emergency can be covered with this amount. For a large scale emergency such as a job loss, even the extra $8000 won’t make that big of a dent.

    Save the interest and then start paying yourself back. Any time I take out of my emergency fund, I keep track of it as a debt to myself. I then put a little extra into it on top of the norm. I’d rather owe myself because I don’t charge me interest.

    I’ll reiterate though. I do like to have some cash around.


  • Blaine Moore (First Time Home Owner)

    BobK has the right of it; paying it off (based on the info you provided) is only going to make matters worse. They need to figure out how to keep the debt from coming back before depleting their savings.

    I’ve never had more than $1k or $2k in credit card debt at any time, and generally pay that off every month. In my case, I’d where the money is and what will keep me from paying interest. The 5 or 6% I can get in an online savings account is probably less than the credit card interest rates.

  • Jeremy

    It depends a little on what type of interest the savings is earning as well. Is it in the 5% range or in just a bank account not even making 1%?

    Personally, I would split the difference. I wouldn’t want to entirely wipe out the emergency fund just to get rid of the debt, especially if the debt is around 10% and the savings is earning something reasonable as well.

    I would take 5 grand and use that to knock down half the debt. Then I would also get on an accelerated debt repayment plan on that card to knock out the rest in 6 months or less.

    The reason I suggest this is that completely eliminating your cash emergency fund could be a mistake. Yes, I’m sure they can build it back up but if an emergency does come up fairly soon after it drops to zero then what? You have to use the credit card to fund that emergency and you wind up in the same situation.

    By killing a large portion of the debt and still leaving yourself a few thousand in the rare case of an emergency you will avoid the need to have to use the card again if something comes up. Especially if that savings is earning reasonable interest, if it takes another few months to pay off the remaining balance that interest will offset much of what you pay on the card anyway.

  • Elisabet

    A fully funded emergency fund is important AFTER you’re out of debt. I think they do need to have some sort of money saved though for the car breaking down, the water heater breaking etc. $10k at the moment is too much with all the debt they have. They should drop it down to $1k – pay off the debt and build it back up. I bet they could do that with 6 months if they’d only sacrifice. It sounds as if they make decent money just from the tone everything you wrote.

  • bobk

    I think there is a bit more to this story. 1st, if this was me and my sweetie, we would pay it out of the emergency fund in a new york minute. But then, we are both disciplined savers – which is why this has never come up.

    My response keys on the 2nd paragraph, in which it states that the “wife’s co-worker likes to spend money”, and that “they just can’t seem to pay off” the credit card bill. Both those statements raise red flags in my mind and may be why the husband is so insistent on holding the emergency fund so tightly. If the woman (in this case) likes to spend money so much, she might well take the use of the emergency fund to pay off the credit card as an opportunity to start spending even more.

    My response would be that 1st, the couple needs to sit down and come to an agreement that all spending stops – by both parties, and that any and all extra monies above household bills goes right back into building the emergency fund once the credit card bill is paid off. If that agreement is reached, then pay off the credit card bill with the emergency fund, then rebuild the emergency fund as quickly as possible.


  • Sun

    I don’t think it makes too much sense to have $10K of emergency fund while paying 10+% interest rate on $10K credit card debt. If they have stable jobs, then they will be better off using at least a big part of the $10K to pay the credit card debt. They can always build the emergency fund gradually with their monthly income. Besides, what’s the likelihood of having an emergency that requires $10K immediately? As Steve said, if that does happen, I think they can always pay the bill with credit card.

  • Chairman Steve

    It’s sheer stupidity.

    Think of it this way … hanging on to 10K of credit card debt isn’t exactly setting yourself up well for an emergency. It would have to be a pretty big emergency to require the whole 10 grand, but even if something like that comes up … what if that emergency also brings inability to work? Then that credit card payment is going to really start to hurt.

    From another angle … think about the fact that some people keep credit cards only for emergencies. That’s right, 10K of available credit will pay for things just as well as 10K in cash. The worst that could happen is that they pay the cards off, and the very next day they need 10 grand for an emergency. Just put it back on the cards, and then they are no worse off than when they started.


  • Rodeo of Debt Reduction #14 → We’re In Debt
  • Personal Finance and Investing Blog » Blog Archive » Carnival of Debt Reduction #82
  • No Credit Needed » Blog Archive » Carnival of Debt Reduction #82
  • Stop Swimming » Blog Archive » Will You Use Use Your Emergency Fund to Pay Credit Card Debt?
  • Around the PF Blogosphere: March 4, 2007 - The Sun’s Financial Diary - Accumulating wealth is like building The Great Wall, one brick at a time