Debt Pay Down FIRST

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This is a guest blogging post by Julie Ali.

I have been reading with great interest, recent articles on the Internet, about the question of whether a person should pay down debt or first, accumulate an emergency fund. The debt pay down drains cash from your pocket while the emergency fund builds it up for future life accidents. Both of these uses of money are important ones but I, insist on debt pay down FIRST.

Why do I do this? Well, first, I think the emergency fund is overrated; if you are a disciplined saver, you will always be able to hoard money in nooks and crannies. Thus, if you are disciplined, you will always have money or will be able to build up a store of money and so the emergency account is of less importance in your life.

If, on the other hand, you tend to be less disciplined or have a lower earning potential (i.e. sort of like my current condition where I earn slightly above minimum wages at casual jobs), then perhaps you do need an emergency fund of slightly more generous proportions. I mean, if you do have a tendency to buy gadgets, gizmos and doodads of every conceivable type in a slightly unrestrained manner, money in the emergency fund is a useful thing to have around (although it might be an even better strategy to refrain from the habit of McSpending in the first place).

I like to have an emergency fund that does double duty. I save money in it and designate this account in my brain as emergency fund money so that my brain automatically refrains from plundering this account, leaving it virginally intact. Then every six months, this account gets ravished (we’re getting a bit Harlequin romancish here) and we transfer the money collected there to the bottomless pit – which is our mortgage.

I am sure there are many people who do not have the same antipathy towards their mortgage as I do, and tend to treat this pit bull loan as poodle-like in nature. But we don’t. We know the pit bull loan for what it is and we want it chained and leased. In fact, we want it mercifully put to sleep.

Thus, with great suffering (well, I exaggerate), I gather every single dollar I can magnetically attract to the metal safe of our emergency fund and well, I imprison it. Sometimes, my husband will talk longingly of the projector he wishes to buy or the latest tool that has caught his fancy at our local Home Depot or RONA store.

Now this tool buying business is a pet peeve of mine so I must rant a bit about this area of a man’s character (i.e. I digress). Most men have this irresistible urge to harvest tools at the local farms of toolery that lie temptingly as far as the eye can see. Often there is a limpid eyed female clerk who is only too willing to assure the male section of our audience that their wives would be as thrilled as they are by the purchase of a $600 piece of metal that will sit collecting dust in the basement, shed or garage of their mutual property. The bedazzled hubbies take home the tool of their dreamings to their less than thrilled spouses who immediately ask the reasonable question of “what are you going to do with this tool?” Most men will respond enthusiastically, that they will fix up the house, build fences, cultivate land, raise gazeboes and in short, be modern pioneers. Ha! In reality, this newly purchased Mammoth will sit patiently with all the other dinosaur tools in the hotly contested storage areas of the home, usurping the rightful storage quarters of the wife. It is the duty of every wife to train her husband out of this strange fascination for tools; at the same time, it would be useful to ensure that he does not buy electronic products, computers, ugly baseball caps, pink and blue flowered ties and striped shirts of any vintage. In fact, it would be best if a wife accompanied her husband on every shopping expedition (oh, darn, there goes my hubby to the tool store again!).

So, as I was saying, my husband does like to talk about his tools and the projector, but with great suffering, I deny him his testosterone fuelled fantasy objects and utilize the funds for the more mundane task of paying down the mortgage. Sad for him but good for us all in the long run, since we, hopefully will pay off this debt in ten years and yet, at the same time, will still be able to enjoy life with a slightly lower standard of living. Debt pay down comes first in our family, followed by tool purchases and the emergency fund.

For many of us, the paying down of debt seems like a foolish thing to do when we could be investing it intelligently in other investment vehicles such as stocks, bonds, mutual funds and rental properties. I guess the investment advisers are all correct in this way of thinking and it would be wise to distribute your stream of money all over the parched investment lands that you survey. But for my family, I have decided to pay down the debt first. We do have RRSPs, we do have bonds, we do have stocks, mutual funds and other investment harlotry that we availed ourselves of. But in the end, what do I do? I pay down our debt.

If you have the skills to make money on the stock market, to intelligently float the cash you earn in the mutual fund tank of your choice – hooray for you. I have lost money in every arena except debt pay down. I am of course not counting the possible loss of the utility of the cash used to pay down the mortgage but I can live with this loss. What I can’t live with is that fact that every six months, my bank drags me back to the start line of my debt pay down by adding interest payments to my principal amount. If you enjoy this type of perversion, get an amortization schedule of your mortgage; once you see in cold hard cash how much money you are paying to your financial institution, then perhaps, it will become debt pay down FIRST for your family as well.

Julie Ali loves to write and is a stay at home mom of two elementary school boys.

{ 5 comments, please add your thoughts now! }

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5 Responses to “Debt Pay Down FIRST”

  1. Debt Free says:

    If you do have credit cards with fairly high limits, you can always use those for an emergency fund if necessary. That way, instead of earning a paltry 4% on a savings account to enable you to have some liquidity for emergencies, you can be retiring debt with a 15% interest rate. Seems like a no brainer. If you do have an emergency, you’ll just charge up the cards to take care of it and be no worse off than you were before. No emergency and you’re way ahead.

  2. I agree. In most circumstances, paying off a liability that costs (say) 7% after tax to service is a much better use of money than building up an emergency fund that earns (say) 5% before tax. For people who cannot keep their hands out of the cookie jar (occasionally guilty), paying down debt reduces the temptation to splurge. There are two circumstances where not paying down debt is the better course of action:

    1. if you can get a better return on your investments and can accept the related increase in risk; and

    2. if your primary source(s) of income are unstable.

    I’ll stay off the subject of “his vices” and “her vices” or my comments will end up being longer than your original post 🙂

  3. Experienced says:

    You still need at least $500-1000 before paying off debt. Even $500 could help keep you over the edge. After all, debt with no savings is what got you into severe debt in the first place. Don’t get me wrong; debt re-payment (as quick as humanely possible to avoid insane finance charges) is important, but it’s also important not to get yourself into any more trouble by not being able to pay the mortgage, car payment, etc.

    If you’re at the point where you credit is shot, you have debt, and high pills, save a little something first. If you don’t, you’ll have nowhere to turn when the car blows out, the rent is due, the kid breaks a limb, etc.

  4. Lisa says:

    I am a huge believer in having the baby emergency fund (about $1000) before paying off debt. If your goal is to honest-to-goodness REALLY get out of debt, then you simply have to stop getting into it. Period. Many emergencies can be solved with a $1000 emergency fund and can easily avoid going deeper into (or back into) debt. Granted, in a true massive emergency, you are going to go after whatever money you have or can get your hands on, but it’s too bad if a blown head gasket requires you to go back into debt. An emergency larger than $1000 should really wait until after you are out of debt.

  5. Once you have paid down your debt and have an emergency fund, you then need to determine how to build your nest egg. If you want to earn 10 to15% interest in a safe way, then you should look at private mortgage investing. To learn more, go to

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