Okay, I'm going to admit something that is a little embarrassing. It probably even will seem a bit dangerous – and stupid – to many people, especially to any fellow personal finance bloggers out there.

I don't have an emergency fund.

There, I said it, and now I can't take it back. But before I go any further, I will say that I have approximately $1,000 in several targeted funds (car, home, gifts, clothing) that I can dip into if I ever needed to. While that wouldn't last long in a real emergency, such as loss of a job (one mortgage payment would wipe out most of that), it's better than nothing. And in fact, I have had to dip into that amount to make some car and home repairs, not to mention one work "emergency" where I had to go buy a new suit before a business trip.

None of that changes the fact, though, that I have no emergency fund. And now I will answer a simple question you have probably already asked yourself:

Why doesn't this nutjob have an emergency fund?

Let me take a moment to direct your attention to a new feature on the right side of my site. It's a new block in the sidebar labeled "Financial meters" and currently it consists of one meter named "Credit Card Paydown."

A simple Google search will reveal that personal finance experts and amateurs differ on whether folks should build an emergency fund or pay down debt (at least, short-term debt like credit cards). It appears that I have fallen on the side of paying down debt first. I'll try to explain my reasons why.

Much of it has to do with how I decided to work toward paying down my credit card debt. Basically, I set up a modified balance transfer arbitrage system.

• About a year and a half ago, I consolidated all of my outstanding credit card debt onto two credit cards.
• At the same time, I took on an additional $3,000 on one of my cards, maxing it out (it was a business card, so I wasn't worried about how near 100% utilization of the card would affect my credit score).
• I parked the extra $3,000 into a high-yield savings account.
• Each paycheck, I direct deposited $200 into that same account, for a total of $400 per month (I get paid twice monthly, instead of every two weeks like many people). This year I upped the amount to $250 per paycheck/$500 monthly.
• I've also been able to use some of this money to complete various bank deals, the proceeds of which go back into the high-yield account, increasing my overall rate of return.
• Of course, any interest earned on the funds in the account is also applied to the credit card paydown amount, which is the whole point of doing arbitrage in the first place.
• Each month, I pay the minimum amounts on the cards (currently about $165 per month). Since the APRs are all currently 0%, I have received no fees (except once when I missed a payment, but I got the fees reversed).

This to me seems like a better setup than first building up an emergency fund and then paying down my credit cards.

In the end, it's all accounting

If I needed to, in addition to dipping into the home/car/clothes/gifts fund, I could always pull cash from the credit card arbitrage payoff fund. I would rather not do that of course, if I don't have to, but it would amount to the same thing as having built an emergency fund in the first place.

At current rates of which I'm adding to my credit card paydown funds ($500 per month, plus interest and deal money), I expect to have enough money to completely pay off my credit card debt in about five or six months – barring any unforeseen emergencies....

And so looking back at the meter to the right, you'll note that the goal amount is actually my current amount owed for all credit cards. This amount may fluctuate a bit, as I make monthly payments. The amount accrued is how much I have in my high-yield savings, earning interest.