Answer

I am in the process of trying to pay down approximately $15,000 in consumer debt but also would like to build an emergency fund. I have about $1,000 month available. What is the best way to proceed? Use all of the money to pay down the debt, build the emergency fund, or split between the two?

I generally recommend that, for every dollar you have to save and/or reduce debt (in your case, $1,000), you spend 3/4 (75% or $750) toward debt reduction and 1/4 (25% or $250) toward building emergency savings. Paying off high-interest credit cards is equivalent to earning whatever rate is charged (e.g., 19%), which is a lot more than what savings accounts are paying. But you also need to have some reserves so that, if an emergency occurs, you have some money and don't need to add to your credit card debt. You might want to do a PowerPay debt reduction analysis to accelerate your debt repayment. When you pay off a creditor, that monthly payment is added to remaining debt. Visit www.rcre.rutgers.edu/money2000 and click on "Resources" to find additional information.