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How to Pay off Debt and Build an Emergency Fund at the Same Time

How do I balance building an emergency fund and paying off debt at the same time?

Let’s talk about DEBT, baby. 

Let’s talk about EMERGENCY FUNDS, baby.

Let’s talk about all the good things 

and that bad things that may be…


Balancing paying off debt and building an emergency fund can feel daunting but, it is possible. It’s about making informed decisions. 


Carrying debt can be just as heavy of an emotional burden as a financial one, and not having an emergency fund in place can feel just as scary. When fund are limited, it can be difficult to determine what you should focus on first. 


Having a plan in place will help lower your fears & anxiety, so read on. 


3 Steps to paying off debt + building an emergency fund at the same time

If you’re figuring out how to build an emergency fund while paying down debt, focus on these 3 guiding principles: 

1) Start an emergency fund. No exceptions

You definitely need an emergency fund. Emergency funds are the core of a solid and healthy financial foundation and are actually the first step to eliminating debt. One of the biggest mistakes I see people make is to focus only on paying off debt, and forgoing an emergency fund. It never works because sh*t happens and if you don’t have the funds available to cover your next Oh Sh*t moments, it’s easy to lean into more debt as the solution. On and on the cycle goes. So in this way, starting an emergency fund is actually the first step to paying off your debt!

2) Set Milestones

 It can feel overwhelming to save or pay off thousands of dollars and without smaller goals to achieve along the way, it’s easy to give up, so set milestones for yourself. 

Here is how to reach milestones while building your emergency funds (let’s say $15,000 = 3 months of expenses of $5,000/month) and paying down debt.

  1. Milestone 1: Save one month of emergency funds. In this case, $5k. Pause and celebrate this milestone!
  2. Milestone 2: Bring some new excitement to your financial goals. Eliminate one *high-interest debt. (No, do not use the funds you just saved!)
  3. Milestone 3: Save an additional month of emergency funds. In this case, $5k.
  4. Milestone 4: Squirrel away your final 5k for your emergency funds. 
  5. Milestone 5: Tackle your next high-interest loan. (Pick one loan at a time.)

* I consider high-interest debt to be 7% or greater. 

3) Squash the All-or-Nothing Mindset

When it comes to debt, it’s not all about the total number. Not all debt is bad! 

When I first meet with a client, I often hear, “I have $25,000 in debt.” But the type of debt matters. In most cases, I first consider the Annual Percentage Rate (APR). Also known as what that debt is costing you.      

  • If you buy something for $100 on a credit card with a 20% APR and don’t pay it off in the next billing cycle, that item really costs you $120. Now imagine that same scenario, but with tens of thousands of dollars, and you can see why carrying credit cards balances STEALS from your opportunity to build wealth. 
  • Conversely, if your debt has a low-interest (6% or lower) you should most definitely be strategizing around building your Emergency Funds rather than focusing on, for example, your auto loan of 2.99% or mortgage of 4.25%. 


Paying off debt and building up an emergency fund often go hand-in-hand.

I hope this helped you gain a little clarity around how to save for an emergency fund AND pay off debt at the same time. 

This is a generic, overview of how you should approach your debt and emergency fund, but everyone’s situation is nuanced. 

If this feels overwhelming, you may benefit from a financial coach to guide you through creating your own financial plan.

Come see what it’s all about by setting up a free call with me. 

Meet MicKallyn

mickallyn ellis in her office


Hi, I’m Mickallyn, a Mortgage Lender/Banker turned Financial Coach.  When student loans put me in debt, I knew I didn’t want to live the rest of my life paying them off, so I figured out how to pay them all off in just a year. Now I have zero debt, 3 homes, 4 college degrees and am raising two little boys. I’ve traveled to over 22 countries and live a debt free life. I’m committed to helping others do the same through 1 on 1 coaching and personalized plans that actually work.

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