Burn your savings or create more debt?

Ask the Experts: Should we use up our savings?

We have been working on paying off our credit cards and have about 1300 dollars left. We are currently looking at a possible $2,000 car repair or buying a new car depending on potential engine damage. I’m wondering if we should increase our credit card debt or deplete our saved resources to pay this bill. We have about 2 months of every budgeted bill saved up and no other savings. Should we use this money or add to our debt? – Stephanie

Stephanie –

Sorry about your car! Having car repair bills drag me back from the brink of my financial goals time and time again I can empathize.

As for your question, there’s no right or wrong answer. Generally, I’d advise you to leave your savings alone. Having 2 months saved for every bill is great and ideally something you should avoid tapping into unless you absolutely have to. If something was to happen next week and your income suddenly stopped coming in, you’d need that savings.

But taking on additional debt’s no peach either, especially if you’re working with a high interest rate.

So there are basically two factors you should consider:

  • How much is the new debt going to cost you in the long run?
  • How comfortable do you feel operating with no safety net until you rebuild your savings?

Another thing to consider: how many of your monthly bills can be paid with credit in a worst case scenario? Maybe the solution is a compromise: hold on to the portion of your savings earmarked for things you can’t pay on credit – like your rent or mortgage. Put everything else towards car repairs or paying down debt, knowing that if an emergency happened you’ve got the available credit necessary to stay afloat until you’re back on your feet.

It’s never fun to have to dip into your rainy day fund, but if you’re smart about when and how you borrow from yourself, you’ll be able to weather the storm and get yourself back to normal much faster.

Good luck!

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • MMI is rated as “Excellent” (4.8/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • MMI is a member of the Consumer Federation of America (CFA), an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.