Emergency Fund Before Debt Payoff
Build a small cushion first — stability is emotional, not just financial.
- Difficulty
- Easy
- Time to result
- ~months to results
- Steps
- 3
- Confidence
- 88%
Tori Dunlap challenges the widespread rule that you must pay off all debt before saving a cent. She argues for building a starter emergency fund of at least three months of living expenses first — even ahead of credit card debt — for two reasons. First, an emergency will come, and without a cushion you'll just borrow more to cover it. Second, the stability is emotional: knowing you're covered if you lose your job or hit a medical cost lets you make every other money decision from calm rather than panic. She insists the fund sit in a high-yield savings account so idle money earns more while it waits.
Origin
Tori Dunlap, money expert and author of Financial Feminist, developed this stance at her company Her First $100K, where prioritizing mental health alongside math led her to reject the debt-first orthodoxy.
Core principles
- 01Build a starter emergency fund before paying off any debt, including credit cards.
- 02Without a cushion, an inevitable emergency just pushes you into more debt.
- 03Stability is an emotional and mental-health asset, not only a financial one.
- 04Idle savings should live in a high-yield savings account so the money works harder.
How to run it
- 1
Open a high-yield savings account
Move your savings into a high-yield account so idle money earns meaningfully more interest than a standard account.
Pro tip It's the easiest immediate win — same as a savings account, just a higher yield.
Watch out Leaving savings in a low-interest account quietly loses you money every month.
- 2
Fund at least 3 months of living expenses
Build a starter emergency fund of a minimum of three months of living expenses before directing money at any debt.
- 3
Make it priority number one, then attack debt
Treat the emergency fund as the first step ahead of all debt, including credit cards, and only begin aggressive payoff once the cushion exists.
Pro tip The cushion is what stops the next emergency from becoming new debt.
In the wild
Dunlap describes the feeling of your head hitting the pillow knowing you're covered — if you get laid off tomorrow or face an unexpected medical cost, the emergency fund tides you over for a period of time.
→ That security lets you make decisions from a calm, grounded place instead of panic.
Common mistakes
Paying off all debt before saving anything
With no cushion, the next inevitable emergency forces you back into debt, undoing the payoff progress and adding stress.
Parking the fund in a low-interest account
Keeping emergency savings in a standard account instead of a high-yield one leaves easy interest on the table every month.
Is it for you?
Best for
People carrying debt who feel they can't save until it's gone, and who need psychological security to make calm decisions.
Not ideal for
People who already hold a solid emergency fund and can safely prioritize high-interest debt.
From the transcript
“I need to pay off my debt first before I save. I just so strongly disagree with that.”
“Your emergency fund should be at least 3 months of living expenses in a high-yield savings account. That is our first step before we pay…”
From the episode
The Money Reset Series: How to Escape Financial Overwhelm for Good