Emergency fund should go second. It could spare, maybe repeatedly, the need for emergency credit. Of course the emergency fund is the buffer space where money goes before making a debt payment.

Investment should go third. A very small money investment need to be exceptionally good to get before paying debt and to get in emergency funds. The smaller the amount, the more high paying and secure it has to be. For this reason alone it is not likely to happen.

Larger investments do not have to be so good to be worthwhile.

It’s wiser to put the money in the emergency fund before it goes to pay off debt.

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It isn’t 50-years ago when there were 3 broker-dealers and to buy shares of AT&T you needed to pay hundreds of dollars in commissions…In today’s day in age, you sign up with Zecco, TradeKing, ING/Sharebuilder and send off $1 a week if that is what you can afford and create the habit of saving and investing for your future! Link up the checking account to your discount broker and pay yourself as little as a few bucks a week and snowflake into the investing account. Let that money sit in there until you have a solid amount (say $250-500 depending on the commission) and then buy an ETF like the Vanguard Totals Stock Market Index with 1,000+ companies…

And as far as not saving into an IRA, you get ONE year to save into your IRA. You don’t get to go back to 2006 and add in a few hundred dollars. Once the year is gone, it is GONE! So snowflake into an IRA as well and let the money sit in there in the Money Market account until you can buy something.

I feel a moral obligation that if I owed someone money, they would get first dibs on my income before I could invest it for myself. That’s a huge incentive to stay debt-free.

I’m in a position now that I’ve paid off all my credit cards and my car loan, have an emergency fund, but still have a rather large loan I took out awhile ago to consolitate all my debts. My advice on this…don’t do it, not unless you’ve cut up all your credit cards, or you will still create more debt.

Anyway, I’m having a very hard time paying off this loan. I’d like to pay it off early but can’t seem to find any $$ in the budget.

My income has gone down about $9000 this year, no more child support and no more overtime, and my expenses, like every one elses have gone up.
I’m wondering if I should stop contributing 10% to my retirement account and go down to the 5% that my employer matches until this debt is paid.
Any comments on this idea?

For these reasons, I don’t understand the advice of putting money in emergency fund instead of putting every cent toward repaying high interest consumer debt. It just doesn’t make sense mathematically. Let’s compare two cases: A. you pay $1000 toward credit card debt today, you don’t pay the interest on this $1000 starting now. Two months from now you have an emergency that requires $1000. Since you don’t have emergency fund, you put this $1000 back on your card. So you added $1000 that you paid off back to your debt, but you’ve saved 2 months worth of interest on this $1000. Case B. you put $1000 to the emergency fund instead. So you have $1000 in the bank earning 3% after-tax and you also pay double-digit interest on the same $1000 on your credit card, so you are essentially losing money every month. 2 months from now the emergency happens which you pay from your emergency fund. But you still have a larger debt than in case A because of all the interest that acrued on this $1000.

No matter how you slice it, it doesn’t make sense to earn 3% or even 5% (pre-tax) in the bank while paying a much larger percent on the debt – whether you call it “savings” or “emergency fund” it still doesn’t make sense. Now if one is paying 0% on CC debt it is quite a different story…