Should you use your emergency fund to pay off debt? Like most things, the answer you will frequently find for this question is: it depends. It depends on things like your job security, your risk tolerance, or your ability to access money quickly.
‘It depends’ is not always the most satisfying answer. So I’d like to simplify things a bit and just say ‘no’.
Why do I say no?
Let’s remember the reason you have an emergency fund in the first place: to provide a cushion in case some unplanned financial emergency should befall you. Perhaps your roof or A/C system fails and you need to replace it. Perhaps your car breaks down and the repair costs are high. Perhaps you have unexpected medical bills. The list of possibilities goes on.
Putting that emergency money into your debt doesn’t change the reality of why you had it in the first place. If you payoff your debt and one of those unfortunate scenarios should befall you, in most cases you’ll be left with nothing but credit cards to cover the costs. That has the potential to put you into MORE debt, and often at higher interest rates.
Not to mention, it gives (most of us) peace of mind knowing that we’ve got cash in the bank, ready to use at a moments notice.
Personally, I think Dave Ramsey’s recommendation of having a $1000 emergency fund and then putting the rest into debt is a little aggressive. I prefer having a larger emergency fund than that, ideally $5000 – $10,000, before tackling debt. However, this could vary depending on how much you spend in an average month.