For example, I’d never be a fan of taking out a home equity loan in this situation unless there is little severance and no pre-established savings. Borrowing some float does have ’some’ merit in this case… this case being on the ‘less good’ end of the spectrum.

In your situation (and my recently too) the wise idea is to evaluate the balance to payment ratio to make the payoff decision. I don’t know what ratio would drive the decision but the size of balance and payment and Emer Fund would all be heavy factors.

So I’m being squishy but here’s the point – HAVE A PLAN. Run the numbers – your numbers – and factor in your job search plan and timeline and alternative income approaches (working spouse, part time job, etc).

Great topic, thanks for sharing!
Dave

My future at my current job is extremely questionable (it is coincidental, but not really related to the current economic troubles). Thanks to my friends, and even ChristianPF, my wife and I have become more conscious and intentional with our money over the last many months. We have intentionally made minimum payments on our outstanding loans and are stockpiling the extra we would normally apply to the debt. We have been able to build up a respectable amount to hold us over for many months if necessary. I would of course, love to secure a new job and knock out a significant portion of our debt. We also continue to give to our local church and other needs around us.

It’s easy to be fearful, but in general we remain positive despite the sobering stories in the news.

However, I think there’s a trade off when borrowing against the house (or taking on debt) to build up an emergency fund.

In a scenario where I lose my job with little to no cash, I would be compelled to immediately find part time work, even if it’s near minimum wage. A $1,000 or more a month might very well cover my essentials (food, gas, basic utilities) and part of my mortgage and/or rent. I wouldn’t lose my house by being late or behind a few months. If renting, it would probably take at least two months to be evicted, even then partial payments on a plan could be made. This would all be downright nasty. But you bet I would bust my tail to get into a decent job soon.

If I have an emergency fund (based on borrowed funds), I might take a more relaxed approach to finding a job. That might be beneficial, especially during interviews, but it might also lead to decreased effort. I would be a lot less inclined to take on a part time job. Ultimately, what if the borrowed emergency funds are depleted and there’s still no job? I’m definitely in debt, might have to short sell or even face foreclosure if a HELOC put me upside down in my home.

Something to consider.

Preferably, the emergency fund is built up before the worst happens (by living on less income than I’m generating and via other suggestions). Taking on debt to build it up, for me at least, is a step too far. It’s a step that I think everyone should think twice about.