An interesting Quandary
My statement about debt has been that if you find money, you should throw it at your debt (if you have debt) until you no longer have any debt left, then think about creating emergency funds and such. You will get better pay back on your funds by paying down your debts, than you will on most things you might invest in (IMHO). It seems obvious, but I have had many folks argue with me that found funds should maybe go into an emergencies or rainy day account.
I have in the past dismissed this argument, but a very good point was made to me by one commenter (yes I do read your comments).
The point made was that if you don’t have an emergency fund you will have to use your debt vehicles as your emergency fund, which in some situations might be OK (i.e. the furnace blows up, the roof leaks, etc.,) for a sudden catastrophic one time expense, but if you suddenly lose your income and have no money put aside, you will then be drawing down on a regular basis your debt vehicles, which banks do not smile upon (especially if you are not making payments on the same debt vehicle).
An example would be if your company suddenly failed (e.g.Nortel) and you don’t get any severance and you have paid a great deal off your house, but you have very little in your emergency fund, you now may be able to negotiate a lower payment on your mortgage for a while, but will Unemployment payments be enough, or will you suddenly start living off your credit cards and/or lines of credit?
This is an interesting predicament and my compromise statement to my normal pay down debt stupid (PDDS) would be to have a 3 month net income cushion in some savings vehicle, that can be used in emergency and then once that is in place all future moneys should be thrown at your debt until it is dead.
Here is the question for the day, do you think it is better to go all out and pay down debt with extra moneys, or is it better to build up savings and pay down debt in a more conservative fashion?