New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

Ask Dr. Don
Bankrate.com

Should I use my emergency fund?

Dear Dr. Don,
I am a 40-year-old single woman who makes a decent salary. I am plagued by a $5,000 debt.

When my father died, there was no insurance to pay for his burial. I took the financial responsibility to pay for the funeral. I have been paying approximately $700 a month.

My company has been purchased and there are rumors of possible layoffs. I feel my position is relatively safe. My question is, should I use the $3,000 I have in my money market fund to pay down this debt?

This money was set aside for my emergency fund. I have no other debt and no other savings. I really want to pay off this debt at a 7-percent interest rate.
Please advise
Candace Cash

Dear Candace,
Don't use your emergency fund to pay down this debt. Paying off this debt isn't an emergency. If you can't handle the monthly payment, ask the creditor to modify the loan terms or find a lender to refinance the loan.

Paying an annual rate of 7 percent on the debt is reasonable, and you're not likely to get a lower rate if you took out a personal loan to change the loan terms.

- advertisement -

Are you sure your father had no insurance coverage? Some company pension plans offer burial insurance for employees. If he was getting a pension, you should contact the plan administrator and ask about burial insurance. He also may have had a life insurance policy that you aren't aware of.

Some life insurance companies will let you search for unclaimed funds on their Web sites. For example, New York Life has an easy-to-use search function. Or, Insure.com describes how you can hire a policy finder, while another page tells how you can conduct a do-it-yourself search for a policy.

Meanwhile, keep plugging away at this debt. According to my financial calculator, a $5,000 debt at 7 percent with a $700 monthly payment should be paid off in eight months, with the eighth payment only $222.45. You'd pay about $125 in total interest expense.

You can use Bankrate's loan calculator to check my work. Use 12 months, a $5,000 loan, and 7 percent interest to arrive at a monthly payment of $432.63. Then input $267.37 as an additional monthly payment amount to bring your monthly payments up to $700.

Tap your savings to help you make a monthly payment if you need to, but don't cash out your savings to pay down this balance.

-- Posted: May 28, 2002

Read more Dr. Don columns
top of page
See Also
Building an emergency fund
Where to stash your emergency cash
Consider tax-exempt bonds for emergency fund
More Dr. Don stories

Print   E-mail

30 yr fixed mtg 4.29%
48 month new car loan 3.15%
1 yr CD 0.67%
Alerts


Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS

BASICS SERIES
Begin with personal finance fundamentals:
Auto Loans
Checking
Credit Cards
Debt Consolidation
Insurance
Investing
Home Equity
Mortgages
Student Loans
Taxes
Retirement

MORE ON BANKRATE
Ask the experts  
Frugal $ense contest  
Quizzes  
Form Letters


- advertisement -
 
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.