Yes, you should go back to baby step 2 to get the van paid off

However, i don’t think you should use $500 of the $1500 you have to pay off the van. I think Stilwell is off when he says to have only have a $1000 ER fund. Where I live, $1000 doesn’t go far in emergencies. Most auto repairs and other things like that end up costing a lot. Then add sales tax to it, and the fund is wiped out. Personally, we have $1500 for our ER fund.
In his book, he does say that when you get to step 3 he says whether you have 3 months savings or 6 months (or somewhere in between) should depend on your lifestyle and comfort level (paraphrasing here). So following that advice we pad our ER fund.
So, even though it doesn’t follow what Stilwell says, I would keep the $1500 in the ER fund and then go back to step 2 till the van is paid off.