Emergency Fund or Pay off Credit Cards?

Should I pay off my credit cards or build an emergency fund?  How much of an emergency fund should I have?  What should I invest my emergency fund in?  These are very common questions, especially for people who are early in their careers, just out of college or starting out fresh after a major life event.  The general rule is that because credit card interest is very high (much higher than what you can earn on a savings account), it's better to pay off credit cards than to save.  However, if an emergency does arise (car breaks down, an unexpected home repair, or medical payment), you will need to use the credit card to cover the emergency expense, which can put you back in the same place.  Also, your home equity is not an emergency fund, as I have written about before - see my related post.  As soon as credit cards are paid off, then it's a good idea to build an emergency fund.  The amount of your emergency fund should be at least three months of living expenses and ideally six to nine months of living expenses.  So, for example, if your monthly living expenses (including rent, car payment, food, utilities, etc.) are $5,000 then you should start to build a $15,000 emergency fund and then increase it to $30,000 and then $45,000.  Emergency funds should be invested very safely, preferably in an FDIC insured bank account or my favorite, which is US Treasury Bills that you can buy directly from the US government with a TreasuryDirect account.  There are many savings account options to choose from - see this post on best savings account rates for some ideas.  Once you have built your emergency fund, the next steps would be to fully-fund your retirement accounts (401(k) at work or Individual Retirement Account, preferably a Roth), then build your taxable accounts.  If you're interested in investing ideas for your taxable accounts, check out my books on Amazon.  Then you are well on your way to Building a Financial Fortress!