[fr0sty]

Unless you are carrying low/no interest debt you should really pay it off rather than put money into savings.

As long as your bank is not evil and keeps dropping your credit limit as your balance decreases you can always borrow again against that line of credit if needed.

[elbelcho]

I disagree.

Saving money for an emergency should be a priority over paying off a credit card debt. In an emergency, you cannot count on the credit card bank keeping your account open. You cannot count on them maintaining your current credit line. ALL banks are "evil" in the sense that they operate with their best interests at heart, and no matter how horrible of a position it may put you in, the CC bank has no obligation to maintain your current credit line.

Having a $2000 emergency fund, even if it's in a shoe box under the bed, is more important and more VALUABLE than $2000 worth of open credit on a credit card. The $2000 under the mattress is almost entirely under your control. The $2000 in open credit is almost entirely OUT of your control.

If you're in a real emergency, what would your rather rely on?

[ChuckMcM]

"If you're in a real emergency, what would your rather rely on?"

I think the point was that if you have credit card debt then you are in a emergency situation already. So using money to pay off that debt means you can get 'out' of the emergency. Paying off the debt and then putting $2,000 into a liquid account allows you to declare the emergency over.

The trick that folks often don't quite realize is that when you carry debt, some of your 'income' (whether its a paycheck or money back from recycling aluminum cans) goes to servicing that debt and not to your benefit. If you are living at the edge of your means, any money not going to supporting you directly is wasted.

That's the reasoning that says "priority #1" should be "get out of debt." #2 is build a "cushion" so that when unanticipated expenses hit you don't take a long term hit to the income stream, #3 is invest in longer term income growth (could be night classes, could be a washing machine to save on laundromat bills, could be stocks and bonds).

[elbelcho]

I understand that minimum monthly payments and interest only payments are absolutely wasted and provide you with no benefit.

However, the emergency I'm referencing is not a general "my finances are a disaster" emergency. I'm talking about an emergency that has an impact far beyond your immediate financial situation.

I'm talking about "I cannot afford food" or "I cannot afford transportation to a job interview" type of emergency. That's a real emergency, in my opinion.

[ChuckMcM]

"I'm talking about 'I cannot afford food' or 'I cannot afford transportation to a job interview' type of emergency. That's a real emergency, in my opinion."

I think we're in strong agreement. I was thinking of your two examples as being subcomponents of the base emergency "We're living beyond our means." Once you are in an emergency situation, your safety systems are compromised and additional emergencies become much more likely.

[arn]

The only thing people should be aware of in this situation is that $2000 under your bed actually cost you $4000 or whatever since you are holding a balance on your credit card with high interest.

[reemrevnivek]

But the alternative, having a $2000 expense and no cash, would be a emergency. You can pay off $4000 in debt (and that doubling is probably hyperbole, but whatever), If you can handle small emergencies that will come up. Read Chapter 6 of Dave Ramsey's "Total Money Makeover" for a more thorough analysis.