The question appears simple,
Should I prioritize paying down my higher interest debt over building
an emergency fund, or vice-versa?
And the details provided are minimal,
I have a debt of $15,000 at a yearly interest rate of 9%, which can be
paid within 5 years.
No further information is provided regarding income and expenses, assets and liabilities, nor goals and obstacles. So let us consider the size of the debt questioned. The $15,000 debt at 9%, repaid over 5 years (used car loan?), would have a payment of about $311.40/month or $3737/year.
The question is phrased as an either/or, and seeks a general guideline, independent of situation. As debt is expensive, the purely analytical answer would be, "Pay off the debt, as quickly as possible".
But five (5) years is a long time. What sorts of problems could happen over that period which could derail the repayment plan? Illness, an accident, car repairs, etc. there are many unexpected events that could happen, and even more unscheduled and yet likely events could derail the five year repayment. Unless the OP budgets some funds for handling those expenses, then they are going to have several (at least 2-3 or more) events that will derail them from their debt repayment plan.
That is why the psychology of a minor ($1000) emergency fund helps. Rather than paying off $2000 debt, then having an unplanned setback push the debt back up $1000, using the emergency fund avoids the debt backslide to a higher amount. The debtor makes progress that continues. Even when the unplanned event drains the emergency fund, they don't slide back further into debt. Does the debtor net worth change? No, but the amount of the debt doesn't spike higher, and they see the finish line approach steadily (even when they stop running and rest, i.e. replenish the emergency fund). So, unless you are a machine, you may find that the psychology of an emergency fund helps you make (slower), but steady progress paying down the debt.
To illustrate my point, my own situation has had a number of unscheduled events occur over the past few years,
- tree fell on roof, $500
- ticket, $300
- tires, $800 (civic)
- ER visit, $1100
- Washer and dryer failed, $1400
- tires, $700 (second car)
- ad nauseum
Having a $1000 emergency fund helped through several of these "unplanned", "unscheduled" events, without falling further into debt. And when the washer and dryer failed, that required saving until I had the additional money to replace them. And when two events happened at once, the emergency fund was not enough, and the exasperation with backsliding on debt was all I needed to reinforce the value of the emergency fund.
Life. It is what happens while you are making other plans.
Reality. Things are going to happen. Have a plan to deal with the things.