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Ask Dave

Working The Debt Snowball With A Line Of Credit As Emergency Fund?

Tim isn't worried about emergencies because of his line of credit...but should he be?

QUESTION: Tim is working on his debt snowball and has one or two months worth of expenses for emergency savings.  He’s not worried about emergencies because he has a line of credit that he would use.  Is a line of credit a good emergency fund?

ANSWER: Do you really think it’s a good idea to go into debt in the middle of an emergency?  A line of credit is not a good emergency fund.  You should have cash available – 3-6months worth of expenses.  Then pay your house off and invest in real estate.  You’ve got to do this in the right order.