Keep a Smaller Emergency Fund or Pay Down an 18.9% Card First?

The article examines whether to hold a $1,000 emergency fund while carrying a $4,100 credit card balance at 18.9% APR, with payments of $200 per month. It calculates that paying the card instead of keeping cash in a 4% savings account saves substantially on interest, with the gain growing when the monthly payment is smaller. The author notes that if the $1,000 is someone's only buffer, the calculation shifts because a surprise expense would then go onto the high-interest card. A compromise is proposed: keep $500 as a buffer, pay down the rest of the balance, and rebuild the fund using the freed-up monthly payment. The analysis rests on stated assumptions about the savings rate, no new charges, and the size of likely emergencies.