No. of Recommendations: 5
Your emergency fund should be set to a particular amount, not a constant 10% drain on your income. From, $1000 to $5000. Have enough to scrape by for a couple months in case you lost your job, or in case you have to fix your house or car.

Once you've saved up enough, put that money that was going into savings back towards paying off the credit card debt.

Make sure you have disability insurance for that purpose (which is even more important than...) life insurance for that purpose. 15 month old daughter? You have health insurance right?

It is true that you lose a little in interest by having an emergency fund. However, when you are trying to beat the credit cards, it is a huge advantage to know that you don't have to use them.

Once you have paid them off, use the cards with the understanding that you will always pay the full balance within the grace period.

If you have a few thousand in the bank, paying the full balance shouldn't be a big problem. This should be liquid funds: a money market account (you can get 5% at an online bank) or savings account. Do not use this money for investing in stocks or other volatile instruments, as that would defeat the whole purpose of having it in the first place. The purpose is to have it available at all times for emergencies that affect the three necessities: food, shelter... and transportation to and from the workplace. Once you have adequate savings and no consumer debt, it makes sense to put the income that was paying off debt towards long-term investing goals (ie the stock market or your own business).

Having adequate savings is the key to escaping from the paycheck to paycheck and credit card bill to credit card bill syndromes.

Good luck,
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