Should I Set Up a Car Repair Fund Before I Pay off My Debt?
March 10, 2009 – 7:48 pmLast month I received a comment that has gotten me thinking about the way we have handled our budget and debt payoff. I had written about a flat tire we received and how we had the emergency fund available in case we didn’t have the cash in our weekly budget to replace the tire.
PK commented in response:
Actually this is not a very good use of emergency fund dollars. This is a very foreseeable event and a separate car maintenance fund should be in place for this instead of resorting to the emergency fund.
I agree. And disagree.
For those that are out of debt it’s a good idea to set up “sinking funds” account to cover expenses. Things like car repair, new car fund, gift money, vacation, house maintenance are a few examples of things that could be covered with sinking funds. I was under the impression that it’s not advisable to fully fund your sinking funds before you are even out of debt. Which is why we did not put anything in a sinking fund specifically earmarked for car repair. BUT, I fully agree that it’s a good thing to have and we plan on doing that once our debt is fully paid off.
Should we have done this already? Do you have an amount of money specifically put aside for car repair? When did you first set aside the money? Was it before or after you were debt-free?
In our situation we didn’t have to touch the emergency fund. We had enough in our budget that we could have moved from putting into savings and put towards the purchase of a new tire. That turned out to not be necessary. Instead our cost was $25 to take the nail out of the tire and repair it.
How do you handle unexpected car repairs while you are paying off debt?
3 Responses to “Should I Set Up a Car Repair Fund Before I Pay off My Debt?”
An excellent response, and actually I agree with you. While you are working on paying down debt you should not have a fully funded account. However, it’s also not a bad idea to find $100-$200 to put in some of these “sinking funds” so that WHEN they happen (not IF) the burden is not so great.
My point is that for foreseeable events, one should be prepared for them no matter what is on the horizon.
Further, many people are applying this idea to their basic emergency funds. There are many people that are increasing their $1000 up to $2000 or one month’s income before tackling debt again.
By PK on Mar 11, 2009
That is an excellent idea, especially given the economy (as much as I hate linking everything to “today’s economy/recession”). I’ve noticed quite a few friends and family mention they are upping their baby emergency fund a bit before they get back into paying off their debt again.
By Momof3 on Mar 12, 2009
One possible idea is the use of credit cards offering 0% interest - because rather than use up your emergency funds it might be sensible to try and earn interest on your emergency fund and instead pay for the car repair through the use of credit cards.
BUT be sure to pay a minimum amount off the credit card every month during the interest free period and make a note somewhere to pay of the outstanding balance on your credit card before it starts attracting interest on the balance.
It means you could actually make a little bit of money by delaying paying off the debt this way.
Just a thought…
By Lord Loafer on Jul 14, 2009