This past year our family experienced more medical expenses than planned. As you may know, that’s life and not something you can always plan for in your budget. Nevertheless, we made it through the year just fine. I was thankful we didn’t end up accumulating any credit card debt. I know that’s not the case for everyone. You or someone you may know could be overburdened with a lot of medical debt right now.
Should You Use Your Emergency Savings for Debt?
Sometimes people accumulate debt and the answer to paying it off is closer to home than you think. I know the common answers to paying off debt are to work extra jobs, make sure you have a debt payment plan, and of course, use a budget. But sometimes people have done a great job of saving money and hesitate to pay off debt using their emergency savings account. After all, it requires hard work and diligence to save money, and it’s not always easy to let it go.
What Would Dave Ramsey Do?
I recently came across a story from a Dave Ramsey show listener. This person had $7,000 in savings and had accumulated $2,500 in medical debt. He wasn’t sure if he should pay the debt off with his savings. Dave told this person he should go ahead and write the check to pay off his debt. I’m sure Dave knew this person could save the money again.
Certainly, this person knew how to save to begin with, otherwise, he wouldn’t have saved up $7,000! The amount of debt compared to the savings also allowed for a healthy amount to remain in savings to cover his family for an emergency ($4,500 after the debt). I’m sure this played into Dave’s advice as well.
What if You Won’t Have Any Savings Left?
So, in this case it made sense to pay off the medical debt. But what about when paying off your medical debt would leave you with very little, or nothing in savings? My feeling is that a family should always have something in savings to cover the unexpected. I know with our family this usually occurs every other month! I don’t think it would be wise to pay off $2,500 of medical debt and not have a penny left. There is a good chance you could end up in credit card debt should the car break down or some other unforeseen expense occur.
But in general, I like the idea of letting some savings go as long as there is enough money left in the account to protect you from common emergencies. For most people, I think this could be around $1,000. Obviously, this doesn’t cover major emergencies, but it covers most of the unexpected expenses such as minor car and house repairs.
Don’t Forget to Rebuild Your Savings!
All this being said, once the debt is paid, you have to again be diligent about building your savings back up. This could still require some extra work freelancing or doing some other side jobs to earn money. But being willing to let go of your emergency savings to cover medical debt (or any other debt) can help relieve a lot of financial stress. Personally, I’d rather be sacrificing to save then sacrificing to pay off debt!
Have you ever encountered a situation like this (medical or other) when you questioned whether or not you should use your emergency savings to pay off debt? Please share your thoughts in the comments!