Life comes at you fast, which is why it’s important to plan for the unexpected.
Rita Soledad Fernández Paulino, a personal finance coach and founder of Wealth Para Todos, who goes by Soledad, knew she needed a hefty emergency fund on hand, just in case. But she was also facing another hurdle millions of Americans can relate to — student loan debt.
Despite her plan to build a six-month emergency fund of $30,000, she prioritized paying off her debt instead. And while she doesn’t regret wiping out her debt, in hindsight, she recommends juggling competing money goals differently.
“I did it in a very extreme way,” she said. “It was like a game and a challenge.” To help meet her aggressive goal faster, Soledad dipped into her emergency fund to pay off her debt, a move she wouldn’t recommend now. If you’re facing conflicting money priorities, like building an emergency fund and trying to pay down debt, Soledad has some advice on how to make a dent in your debt without hijacking your savings.
Why you shouldn’t drain your emergency fund to pay off debt
When Soledad started paying down her student loan debt, she was dealing with health issues and a smaller income. As a teacher, she’d been relying on public service loan forgiveness to wipe out her debt, but when she became ill and was uncertain if she could return to work, she took her loan repayment plan into her own hands.
Soledad came up with a plan to knock out the balance within four months — an aggressive goal that required cutting back on nonessential expenses.
“The first time I put $1,000 towards my student loan payments, I was like, this feels so unsafe.”
After getting into the swing of making large payments towards her debt, she made a risky move. She pulled $7,000 from her savings and put it toward her student loans. “It felt like gambling,” said Soledad.
Pulling from your emergency fund for nonessentials can be financially hazardous, and Soledad’s situation was particularly precarious. She was still living off of her husband’s income and disability — 60% of her income as a teacher — and had racked up over $10,000 in medical bills. Lowering her savings could have put her in a financially vulnerable position.
While the move worked out for Soledad, she acknowledges that it could have gone wrong very quickly.
“I do wish I would have had more patience and faith that we would eventually be able to increase our income and use that extra cash flow to make debt payments,” she said. She was laser-focused on the goal and less focused on building long-term habits that would help with other financial goals.
If you’re setting a goal to pay off debt, here are less risky methods Soledad recommends.
Review your income and expenses
Before you start putting more toward your debt, look at your entire financial situation. Do a budgeting exercise to figure out how much is coming in and out of your account each month.
If you find you don’t have enough left at the end of the month to hit your savings goals or put more money towards your debt, comb through nonessential expenses to see if you can cut back anywhere. You might look at gym memberships, streaming subscriptions, takeout and restaurant costs or entertainment spending.
You might also focus on spending that doesn’t align with your lifestyle. When Soledad worked towards her debt-free goal, she found she was able to cut back on memberships, dining out and going out on the weekend, since her illness made it difficult to enjoy those expenses.
The important part is to make sure you know where your money is going and how much is left after paying your bills and other expenses each month. If you don’t have enough money to cover your debt, you might consider short-term ways to increase your income like working a side hustle or freelancing for a few extra hours a week.
Look at your debt and other financial goals
Next, look at all of your debt balances and any accruing interest so you have as accurate a debt payoff goal as possible. Then, create any other money goals you have — like a sinking fund for a vacation or holiday gift-buying budget. If you don’t have an emergency savings account, make sure you also create that as a money goal to work towards while paying down your debt.
Put monetary amounts to each goal and you can put an estimated timeline together of when you’d like to reach that goal. You may find that some goals are more important and that you’ll need to allocate funds toward competing goals. And that’s OK.
Create a debt payoff plan that fits your lifestyle and values
After you crunch the numbers, determine how much more you can comfortably put toward your debt and other savings goals each month. For example, let’s say you have $500 left over in your monthly budget to apply to different goals. Here’s an example of how you might distribute that:
| Money goal | Monthly payment |
| Student loan | $270 |
| Credit card | $100 |
| Emergency fund | $130 |
As long as you’re making the minimum payment on all debt accounts, you can raise or lower this amount as other goals become more important. For example, if you’re able to scale back and save an extra $100 a month, you could apply this to your credit card debt first, or choose to distribute it evenly across your credit card and emergency fund goals.
If you’re not sure which debt to prioritize, you can use a debt payoff calculator to determine how soon you can pay off your student loans or any other outstanding balances, said Soledad. Adjust the payment amount to see how long it will take you to pay off the balance with different amounts. But make sure it’s an amount that you can stick to.
Then, make a plan and set a debt payoff date. You may use a coloring chart or app to track your progress.
“See which one feels exciting or looks like a challenge but also feels sustainable,” said Soledad. You may be able to make small changes, such as decreasing an unnecessary expense to put extra money toward the debt. “And then when you pay it off, celebrate,” she added.