Almost everyone agrees that high-interest debt should be your main priority when allocating your extra cash, but in the midst of the recession, personal finance guru Suze Orman says emergency funds trump debt payback.
Photo by eric731.
If you have an unpaid credit card balance [and]not much saved up in emergency savings, I need you to listen up. My advice has changed. I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can.
Trent from personal finance weblog the Simple Dollar discusses Orman's claim in detail, working out whether or not he agrees that the importance of an emergency fund should outweigh paying down your debt. He doesn't agree, in fact, arguing that:
In this environment, making the decision to jump from debt repayment to emergency fund building is about two years overdue. Of course, two years ago, many fewer people would have listened to such advice.
We've emphasised the importance of an emergency fund in the past, but we can't help but agree with the Simple Dollar on this one. Still, let's hear what you think—and what your priorities are—in the comments.
Suze Orman and the New Rules of Credit Card Debt [Yahoo Finance]
Is Suze Right? Do Emergency Funds Now Trump Debt Repayment? [The Simple Dollar]