- At the beginning of the year, I took on about $US5,000 in credit card debt to fund two home improvement projects.
- My husband would be doing the construction during a gap in his employment, and we planned to pay off the debt quickly when he returned to work.
- The coronavirus epidemic has impacted his ability to return to work quickly, but we’re still focused on paying down the debt, even at the expense of building an emergency fund.
- Read more personal finance coverage.
At the beginning of the year, my husband and I started two home renovations. In January, we extended a tiny quarter bath into a full master bathroom. When that was finished in mid-February, we gutted our kitchen for a remodel.
We jumped into the projects because the timing seemed perfect. Little did we know, we were starting a remodel – and taking on debt – on the cusp of a pandemic.
Our plan seemed sound: My husband was between jobs, so he would do all the labour himself (he has lots of experience in the trades). We used credit cards to pay for about $US5,000 worth of materials. We saw it as borrowing from ourselves: We would save money by having my husband do the work himself during his employment gap, and quickly pay off the debt when my husband returned to work in March.
Then, the coronavirus hit.
My immediate concern was social distancing with two kids and no running water, stove, or microwave in my kitchen. There was little food in the house, because we’d “cleared the cabinets” in preparation for the remodel. That week, we ate a lot of sandwiches while my husband worked overtime to get our kitchen functioning.
After he finished the essential work and did a late-night grocery run, I was able to start thinking about the financial implications. My husband’s job prospects are on hold, especially since we now have two kids home full-time that he needs to care for.
Reducing interest, rather than saving for an emergency
I’ll be honest: Even before this financial crisis, it never made sense to me to build an emergency fund while having high-interest debt. I know the experts recommend even a small emergency fund, like the $US1,000 that financial guru Dave Ramsey highlights in his Baby Steps series. The idea is that having an emergency fund can break the reliance on credit cards.
But, I’ve always felt in control of my credit card use. Like the decision to spend on the renovation projects, most of my credit card swiping comes after careful consideration. I’m not someone who recklessly spends, so I didn’t need the emotional control of avoiding credit cards at all costs.
In my mind, it made much more sense to avoid paying interest. I would rather pay $US1,000 toward credit card debt and save money every month on interest than have it collecting minimal interest in a savings account. Plus, in a real emergency, I could use my credit cards and then create a plan to quickly pay them down.
Crunching the numbers
Now that our home projects are (very nearly!) done, I sat down to crunch the numbers. I’m uncertain about what the next few months are going to bring financially, so I’m trying to reduce my outgoing expenses. I’ve cancelled Amazon Prime and other subscriptions, and am saving money on extracurricular activities and daycare costs.
But, the minimum monthly payment on the debt we racked up during the renovations is substantial: about $US200 a month. A significant chunk of that is interest. By prioritising payoff, I can reduce our outgoing expenses and save money on interest. Both of those ideas make lots of sense to me at a time when we’re tightening our purse strings.
But what if there’s an emergency?
During this economic crisis, I’m doing my best to carefully budget my income. As a freelancer, I have some ability to adjust to changes in the market and pick up new clients when one goes under. I really hope that I’ll be able to continue to cover my family’s monthly expenses and pay down the renovation debt.
If something unexpected comes up – a vet bill or car trouble – I can always put it on my credit card and just continue to pay it down. Having credit freed up is, in my mind, a sort of emergency fund.
Of course, in an ideal world I would be able to handle financial challenges with cash on hand, but for now I would rather that cash be working to reduce my overall debt, and to improve my financial security for the future.
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