As I mentioned about a week ago, Mr. BFS and I paid off his car.  Yay!

Well, we made the last payment of $4600 by using our emergency fund.  In fact, the entire last $7500 came from that account.  I’ve had a couple of people seriously wonder about our mental health since we’ve also had to raid our cash for dental expenses, vet bills, a major vacation, and grad school payments.  This means we went from having more than $20,000 in cash to about $4500 in cash in less than 2 months.

Here’s how we justified the risk:

1)  Mr. BFS just signed a one year contract with his new school district as a librarian.  He’s guaranteed the job for at least one year making more than he does now as long as nothing really awful happens (he’d have to beat a kid or something to be let go before June 2011).

2)  My job is stable too. My department has shrunk to TWO people due to transfers out, but we are one of the few departments in the company that bring in more than we cost 100% of the time.  As long as our car dealership customers need forms, I’m safe.

3)  The $4500 we have left is enough to cover almost a month and a half of normal expenses or 2 months of the bare minimum.  Plus, it wouldn’t need to be touched unless we both lose our jobs since we can live off of one of our incomes – granted, we’d live better off of hubby’s than mine. 

4)  It will take us much less than a year to be back to normal. Since we do live off of one income and only have the $740 a month mortgage debt left, we will be able to sock away the $15,000 in no more than 8 months (probably more like 6-7).

5)  The 4.6% interest car loan was a better return on our money to pay off than the 2.15% we were making at Smarty Pig or the 1.1% interest at ING.

6)  If we do run into major problems, we have backup – more than $16,000 in stocks, $15,000 in a Roth IRA we could withdraw without any penalties, at least $30,000 in home equity, and if we’re dying from hunger or something, more than $50,000 available on our credit cards (but it would be hard for me to accept 12-13% interest rates).

7)  It feels great to only have a mortgage left and we’ll even be able to knock that off faster than originally planned.  We were on track to pay off our 2007 mortgage by 2018, but that will probably end up being 2015-2016 at the latest.

Is using an emergency fund to pay off “low interest” debt a good idea for everyone?  No.  If you are not in a stable job, have major expenses pop up on a regular basis, or have dependents that solely rely on you, I’d suggest you keep at least a solid 6 month emergency fund on hand at all times.  It’s safer and smarter.

For us, I think it was a good choice.  I promise to keep you updated if this comes back to bite us in the butt somehow. 

Have any of you raided your cash to pay off a debt?  How did that turn out?  Any major successes or horror stories out there?