Using emergence fund to clear debt.

loken152

We have been on a debt free trip for the a while now and we are on the final debt. With our current plan we shall be debt free in October but i keep saying the end of the year as something will surely get the way, good news my wife will be starting a new job in two weeks after not having a job for two years after we had our second child. So with this we will be able to clear it even quicker.
The wife came up with the idea that we should use our emergence fund, what is currently 3 months worth of house hold expenses. Using this and adding what we have currently saved towards paying the final debt. Putting these together will easily clear the final debt. If we do this we will would be able to replace the emergence fund in 2-3 months with both of us working and then increase it to six months worth in another 2-3 months.
I am a little reluctant to use the emergence fund, because something will surely go wrong if we don’t have it. What do you think?

parsniphead

Perhaps you could keep a portion, such as £1000 to cover emergencies and use the rest.

Congratulations on getting your new job.

datlex

What exactly do you view the emergency fund as being for OP? One person's emergency fund may be different from another. When you say household expenses do you mean mortgage/rent plus water/gas/electricity or do you include more bill? If you have a mortgage have you looked at whether you can have a payment break should you need to? It is worth thinking about this.

A few things to consider.

1) How stable is your job?
2) Would your wife's wage be sufficient to cover your household expenses should there be an issue with your job?

If your job is stable then paying off the debt makes sense especially with a second wage coming in.

If your wife's wage is sufficient, the you don't need the emergency fund. If your wife's wage is not sufficient keep the difference. i.e. if bills per month equal £1800 and your wife can afford £1400 you keep £1200 (£400 x 3).

m_c

I'd be with parsnip, although perhaps wait until your wife's first pay packet comes in?

loken152

Well i consider an emergency fund to cover mortgage/rent all household bills, food and a little extra for fuel. Iv told her we shall see and wait for her 1st payslip before we seriously consider it.

enjoyyourshoes

What interest will you earn from the emergency fund over the 3 months Vs the interest on the debt over same period and compare.

Link that to the rise of requiring the emergency fund over the same period.

Then make a judgement.

Depends on scale of debt/fund and variance to £ interest.

redux

If you still have a current credit card, you could consider that for either just an emergency reserve or routinely use it to pay for groceries and fuel, which gets you 3 to 7 weeks cashflow advantage, i.e. buy now, pay it in full with next month's wages.

enthusiasticsaver

It would depend on how much interest you are paying on the final debt but I would look to getting rid of it at the earliest opportunity. Waiting until your wife has got the first two pays though would be a good compromise. I think I would be wary of taking the emergency fund down to nil.

tori.k

I've been having the same dilemma, You right in a least waiting until your wife's pay kick's in, so you know she is happy in the role and everybody is happy with the new routine at home, guess the question is would you save more paying off the debt then if you need to use a credit facility. in my case it 3.3% on a loan or the potential risk of 18% on a credit card, so I will wait a couple more months to negate that risk.

loken152

Well the interest on the savings (emergence fund) is 1.25% and the final debt what is a loan is 8.8%, as i have stated I think we shall wait until her pay starts to come in first before we make our mind up. Plus i get paid before that to so i shall be able to add some more money to the pot that i been building to pay off the last debt. So i theory i should not have to use all of the emergence fund.