I know, I know... we sometimes don't know what to do first. Walk the dog or wash the car? Vacuum the carpet or clean the bathrooms? Mow the lawn or trim the shrubs. Pay off debt or establish my emergency fund?
The Chicken or The Egg, Whch Came First?
May I suggest that some things can be done simultaneously? Well, it would be rather difficult to wash the car and walk the dog at the same time. But what about paying off debt and starting an emergency fund? I get asked that question a lot, which of those two should be at the top of the list.
Get Out Of Debt
My answer: both. You can do both together. First of all, start small. On top of the minimum debt payments, set aside $150 each month for paying off debt and creating your emergency fund. Divide it any way you wish, say $50 extra for paying off the debt and the other $100 for the emergency fund. In less than a year you'll have a $1,000 emergency fund. Way cool!
Create an Emergency Fund
If you don't have a well-established emergency fund it does no good to pay off your debt because an emergency will come along and you'll need to charge the expense on your credit card; think: new tires for the car. What a bummer; it's not like you can throw a party and have your friends come over and see your new tires. The emergency fund is just for that: new tires for the car.
People get discouraged when they've established their emergency fund and then they have to use it. But, that's what the fund is for; you'll be glad you had it and you don't have to go further into debt.
We still may not know about the chicken or the egg, but let me know in the comments below how you're coming along with paying down debt and creating an emergency fund.