Building an Emergency Fund While Managing Debt: Why the Order Matters More Than You Think

Many people face a paralyzing financial dilemma: should they aggressively attack their outstanding debts or focus on building an emergency fund first? According to financial educator Jessica Moorhouse, the answer is clear—and it contradicts what many traditional money gurus recommend.

The Case Against Debt-First Strategy

Most financial advice seems straightforward: eliminate debt as quickly as possible. Yet Moorhouse challenges this conventional wisdom, explaining that this approach often backfires. When unexpected expenses arise—and they will—someone without emergency savings must rely on credit cards or loans to survive the crisis. This creates a paradox: by ignoring short-term financial security, you’re actually increasing the likelihood of taking on more debt.

“If you don’t have cash reserves, an emergency will set you back to square one,” Moorhouse explains. The reality is that life’s unpredictable events don’t care about your debt payoff schedule. A car repair, medical expense, or job loss can instantly undo months of debt reduction progress if you lack financial cushioning.

Why Emergency Reserves Come First

The financial priority should be simple: establish a safety net before launching into debt elimination mode. This isn’t about ignoring obligations—it’s about preventing financial catastrophe. Without an emergency fund, you’re one crisis away from accumulating additional debt, which defeats the entire purpose of paying down what you already owe.

Think of it as building your financial foundation. You wouldn’t reinforce the walls of a house while the foundation is crumbling. Similarly, trying to aggressively eliminate debt while living paycheck-to-paycheck is attempting structural repair on an unstable base.

The Practical Balance: How to Execute Both

Starting from nothing feels overwhelming, but Moorhouse suggests a realistic three-month target for living expenses as your ultimate goal. For those in precarious financial situations, the approach is incremental: save one month’s worth first, then build from there.

During this accumulation phase, your debt strategy changes:

• Continue making minimum payments on all obligations
• Don’t attempt aggressive payoff until your emergency fund reaches that three-month threshold
• Once you have adequate reserves, redirect extra funds toward debt elimination

This dual approach prevents the trap where one financial setback erases your progress entirely. You’re protecting yourself while simultaneously maintaining your debt obligations—the best of both strategies.

The Bottom Line

The sequence matters: emergency fund establishes your financial foundation, then debt repayment accelerates. Reversing this order often extends the time you stay in debt, not shortens it. By prioritizing an emergency reserve, you’re actually being smarter about debt elimination in the long run.