Financial Bind: Use My Emergency Fund or Take On Debt?

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Hey Taylor - My car died the other day and I need to get a replacement ASAP. I’m wondering if it makes more sense to take some money from my emergency fund or take on a little bit of debt (I think I could pay it off in about three months). Any thoughts? - Karen

Hey Karen - Sorry to hear about the car! Sounds like a less-than-ideal situation, but sometimes you gotta do what you gotta do. Instead of me giving any sort of directive, let’s go over the pros and cons of each option.

1. Emergency fund. It’s there for emergencies, and this probably feels like a dire situation. If you don’t have a car to get to and from work, you won’t be able to afford anything, much less a new car. However, the real need for an emergency fund comes when you find yourself either unemployed or incapacitated. Ideally, you leave that money alone until circumstances truly leave you with no other option. The only time I’d advocate for pulling out of your emergency fund is if you feel confident you can reimburse yourself quickly and you aren’t using all of those savings. If you can take less than half the fund and replace that money within a couple of months, that’s not the worst scenario.

2. Credit. Whether you get a loan from the dealership or put the expense on a credit card, you’ll lose money by way of interest. I hate debt and would prefer almost any other route, but if you have good credit and get a decent APR, paying interest for three months might be worth leaving your emergency fund untouched. This all comes down to the size of the loan, the amount of interest and whether or not you have other outstanding balances. If you already pay a bunch in student loans or other credit card debt, I’d lean toward not putting yourself any further into the red.

3. Wait. You didn’t mention this option, but I’m still going to bring it up. I know you need a new car ASAP but have you looked at every option? Can you get by doing rideshare in the short term? Sometimes it costs less to pay for Uber or Lyft than it does to cover your own car payment, gas, and insurance. Can you try public transportation for a month while you look for a cheap vehicle? Do you have a friend going out of town who might let you drive their car? These options could all be nonstarters, or one of them could solve everything and save you a chunk of money.

Buying a new car is one of life’s necessary evils, which is why we all need to budget for just such an event. If you’re interested, you can read about some of my “must budget” items at In the end, you just need to find the least costly way to move forward and go for it. Good luck, Karen!