I Have Extra Emergency Savings. Should I Use It to Pay Off My Credit Cards?

As of the first quarter of 2023, Americans owed a whopping $917 billion in credit card balances, according to data from TransUnion. If you owe money on your credit cards, you may be eager to pay off your balances as quickly as possible to avoid racking up scores of interest -- and throwing your money away.

Now if you don't have money in your savings account, you may have to ride out those balances for a while and do your best to cut your spending to chip away at them. But what if you have extra money in your emergency fund? At that point, it can be tempting to take a withdrawal to chip away at your credit card debt. But is that a smart move?

Remember what that money is there for

The money in your emergency fund should be earmarked for unplanned expenses or a period of unemployment during which you're not getting paid. So if you dip into your emergency fund to pay off your credit cards, you'll have that much less cash available when another financial crisis arises.

In fact, as a general rule, you really shouldn't tap your emergency fund for a non-emergency expense. A credit card balance hanging over your head isn't a great thing, but it also doesn't qualify as an out-of-the-blue expense.

That said, there's an exception, and it's if you really have a lot of extra cash in your emergency fund. In that case, it could pay to use that money to whittle down your credit card balance.

But what constitutes extra emergency fund money? You should generally aim for a minimum of three months' worth of living costs in your emergency savings. But some financial experts will tell you that it's appropriate to save up to a year's worth of expenses in case something terrible happens or you're faced with an extended period of unemployment.

So before you make the decision to take an emergency fund withdrawal to pay off a credit card balance, ask yourself whether you really do, indeed, have extra money in that account. If you have enough cash to cover 13 months' worth of expenses, you're probably okay to remove a month's worth and apply that sum to your credit card debt. In fact, that could actually be a very wise thing to do.

But otherwise, be careful about tapping your emergency fund. You don't want to leave yourself short on cash to cover your next personal crisis.

You need that protection

The whole purpose of having an emergency fund is to stay out of debt when unplanned bills arise. But if you raid your emergency fund too much to pay off existing debt, you might simply push yourself into new debt in the future.

So instead, strike a balance by only withdrawing extra cash in your emergency fund to pay off a credit card balance. There are other steps you can take to whittle that debt down sooner, like picking up a side hustle and using your extra earnings to make your balance disappear.