I have $5,800 of credit card debt with a high interest rate.
This year I had a medical emergency and have depleted my savings, and have no savings cushion.
I usually get an approximately $2,500 tax refund every year.
How do I get the most out of my return? Rebuild my emergency fund, or pay my credit card debt?
My opinion is you must rebuild your emergency fund first. If you don’t then any unexpected expenses will just land on the plastic and you’ll be left with no emergency fund and more debt.
I’ve seen it happen over and over again. Someone with no emergency fund works hard to pay down their debt and some unexpected expense rears its ugly head. The debt lands back on the plastic and adds years to the time it will further take to get out of debt. Imagine if you did not have that emergency fund to draw on when you needed it most.
Having an emergency fund is really a critical component to deal with debt.
Also, if you are getting that much back it sounds like you need to adjust your withholdings. The good news is that doing so will give you extra cash each month to use to pay down your debt. You might want to look at the free service offered by ReadyForZero.com to get you on an optimal repayment plan.
Please post your responses and follow-up messages to me on this in the comments section below.Big Hug!
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