Pay Off Debt Before Filling The Emergency Fund?

Jay is finding it really hard to save the first $1,000 since he's barely making ends meet now. Should he pay off one or two bills first before starting his baby emergency fund?

QUESTION: Jay in Knoxville just found Dave, but he’s on fire to follow the Baby Steps. He has debt from a previous marriage, and he’s been paying on them for a while. He wants to get caught up. Jay is finding it really hard to save the first $1,000 since he’s barely making ends meet now. Should he pay off one or two bills first before starting his baby emergency fund?

ANSWER: You’re going to have to give up something. Something’s going to give here, because this is going to explode on you if you don’t put some pressure on it from some angle or another. I’m not suggesting you never be a dad, and I’m not suggesting you be a bad dad, but we’re going to have to start thinking about what is going to give. You could take a part-time job delivering pizzas. Or since you don’t have to be at work until noon, we’ve got to find something to do in the mornings then. You could squeeze it in. You don’t go to work until noon. It’s not hard to squeeze it.

You can’t rehearse a whole lot for $300. You’ve got to make some money. I’m pounding you here because you’re going to have to move your mindset, and your life has changed. You told me that, and you got all this crap dumped on you and we need a shovel to get it off of you, and then you can go back to doing whatever you want to do. You’re going to have to work like no one else for a little while here. We’ve got to figure out some number of hours somewhere that generates dollars—big dollars. A thousand or $1,500 a month would change your whole world right now. Think about it. In two months, you could be done with family and credit cards. How would that feel?

Your first goal is to be current with everyone, and you’re barely able to do that. That’s your first goal. Once you’re current with everyone, then you start your Baby Step 1. It doesn’t murder you then. Everything extra that comes in above minimum payments goes into your baby emergency fund until you have $1,000.

Ask your family to sit on hold until you get $1,000 saved, and then go back to them, because you’re throwing a chunk of money at them right now. If you threw that at those credit cards, they’d be done fast, and if you threw that at your $1,000, it’d be done fast. You’re trying to do too many things at once. The purpose of the Baby Steps is to be very focused and not try to do too many things at once. Let’s figure out one thing and do that. Let’s figure out another thing and do that. This is while paying minimum payments. But you’re trying to get rid of this family debt, and if you want to do that and sit there with no money in the bank and try to knock out the family, you can. It would not be my suggestion, because every little thing that comes along that you stub your toe on right now is going to cause you to bleed. A little bit of a $1,000 pad is not going to put them off.

If I were in your shoes, I would roll up my sleeves, ask the family to take a moratorium, pay minimum payments on student loans, minimum payments on medical debt, and minimum payments on the credit cards that you can possibly do. Get $1,000 fast. As soon as you get that $1,000, then we’ll lay the debt snowball out, and if you want to assign $300 a month to the family as the minimum payment for the debt snowball when you start it, that’s fine. Then we’re going to list the debts smallest to largest. The smallest debt gets all the attention above the minimum payments. You decide what that is. If you want to make up a $500 minimum payment to the family, I don’t care, which means they’re kind of at the top, but they’re pretty small anyway. And you knock them out. I think you’re going to have to get that little bit of wedge between you and life because life’s been kicking you in the kneecap left and right.

Secondly, once you’ve got that order laid out like I’m talking about, you need to do some things to get your income up. You’re going to have to sacrifice between now and Christmas. I would propose to you to have no life between now and Christmas so you can get your life back. If you got rid of all of the family problem, the credit card debt, and really started chunking through those medical bills between now and Christmas, you would really start to see light. You’d have some wiggle room—some margin—again. I’m not asking you to give up the raising of your children. I’m not asking you give up the band. I’m just saying between now and then, you may have to put some of that back against the wall a little bit for minimums to be able to get yourself some margin again, because you really are going to have to get a shovel. If you don’t do all that, then you need to sell your car and move down because the car payment’s killing you, too. If I were you, I’d sacrifice to keep it because I think when you clean this mess up, you’ll be glad you got it. If not, let’s get rid of that car and get you a beater. We’ll use that payment to give you some margin.

The thing that you’re doing that is so normal and everybody’s got to not do is trying to do too many things at once. Decide on a course of action on one thing and then put the wompus on that one thing.