I'm just getting into serious personal financial planning. Recently went through a 5 month period of unemployment, sudden layoff with no severance, and nearly lost everything. I'm employed, back on my feet and my goal is to never be in that position again.
I have a budget and have done very well sticking to it and using it as a tool to cut unnecessary expenses. I now have a surplus of income beyond monthly expenditures. But, I also have $60,000 in debt for multiple accounts with $15,000 of "high interest debt" (per the wiki) at 12.875% and the remainder below 4%.
My first priority is an emergency living fund. I don't have any credit cards or any other account to draw from. Using my budget, I calculated $17,000 for 6 months of bare-bones living expenses including minimum payments on debts. Worst case scenario, I would be able to fully fund this in 18 months; best would be 10 months.
Given that I do have some high interest debt, is there a "tipping point" where it makes sense to allocate some of my surplus income to debt repayment (to reduce the interest paid) while the rest goes to the emergency fund? For example: after I save half of my emergency fund goal, 25% of surplus would go towards that high interest debt and the rest saved? Or is full funding of my emergency account first worth the higher amount of total interest paid?
Note: I'm not in a position to "save $1000 and throw the rest toward debt." I've worked it out with a debt payoff calculator multiple times and that plan would not make any sense for my current financial situation. Even after a year, I'd still have major obligations and very little savings should anything happen.
Submitted October 25, 2017 at 01:11AM by FearOfShallowliving http://ift.tt/2h8fVMh
