I can’t tell you what you should do, sorry. But I can tell you what I would do.

I need to keep a roof over my family’s heads. I would build an emergency fund of a 2 or 3 mortgage payments before aggressively paying on credit cards. Why? Because if the income stops rolling in, it could take a few months to find a job. In the mean time, credit cards are not going to make my mortgage payments.

Hope that helps give you some perspective. Cheers.

Everyone’s situation is different, so it’s impossible to provide a universal answer and difficult to provide a specific answer without more specifics.

If you’re paying the minimums on the Debt Management Program (DMP), maxed out on the $300 limit credit card, and barely scraping by, then one might be a good candidate for bankruptcy. I don’t recommend bankruptcy lightly, so this is not a flippant answer. It’s a choice when one has no other choices.

If you’re paying well beyond the minimums on the DMP, and there are truly luxuries you can do without, I’d reduce my expenses, drop back to paying minimums on the DMP, start building a cash cushion and start paying down the credit card.

Never get rid of any credit card you have unless it’s costing you money in annual or monthly fees or because you have to–like if a prime mortgage lender is offering you a home loan but thinks you have “too many” credit cards and wants you to close some of them. Even when you get rid of a credit card, do so only after first acquiring another credit card that is at least as good or better in terms of the credit limit and APR.

If you’re concerned about your ability to manage the credit cards you have, then by all means do NOT cancel them. Instead “freeze” them, literally. Take a rinsed out metal soup can or orange juice can, stick your credit cards in the can, fill it with water, and stick it in the freezer. The credit cards are still there for a true emergency, but you cannot get to them easily. It is merely a psychological barrier because while you cannot microwave the can (metal in a microwave is very bad, and microwaving your credit cards might damage the magnetic strip), you can run it under hot water and “thaw” your cards. However, I believe it works to wean one off the dependency.

[…] Finance Advise asks the priority between paying off credit card debt and building an emergency fund. It didn’t go well with me last time when I discussed credit card debt and […]

What I would do, If I were you…

First, Pay off both the credit cards but each payment you make match with an emergency fund deposit.

Second, Can those cards. (either in the freeze suggestion or literally cancel or trash)

Third, get a better credit card: one with a greater limit, lower interest, and greater versitility. Start at zero and pay it off each month. Rebuild your credit.

Lastly, Each credit card payment, match and add to your regular an emergency fund deposit. This will keep your credit card purchases reasonable for your income, because each dollar you spend is costing you two.

First things first. You need to get a handle of your spending habits (with a budget plan)and track where your money is going.

Focus on paying on-time & the minimum payment every month.

Follow up with building your emergency fund. Dedicate a certain percentage or dollar amount every pay period without religiously and without compromise.

Start small and build your emergency fund to $500 to replace your need for a credit card. This emergency fund will provide you with the needed security that is needing for unexpected events.
(Continue to contribute to your savings until you accumulate $1000 for added security).

Good Luck & Good Fortune!

Emergency fund first. $1000.00.

Then deal with the debt.

Recommended reading….

Dave Ramsey, “Financial Peace” and “Total Money Makeover.”

Good luck to you!

The first step to take is to pay off that $300 on the credit card and then stop using it except in the case of an emergency.

From there, you can begin to build up an emergency fund.

Since it seems that you haven’t mastered how to use credit cards, I would go to an all cash system and not play with them until all that debt is paid off.

I would also trash your store credit card (is it paid off?).

Drop the store card unless you can buy groceries with it. The 3 month expenses rule is unproductive because it stops some people from even starting a fund. If the $300 is a windfall, Pay down $200 on the card and open an account with $100 (with INGdirect, or HSBC, etc), look at your budget and see if you can set up a monthly deposit to the account, even if it’s $10 or $25/mo

I’d spend some time thinking about the spending habits that got you into this situation first and try to find a way to slow them down. Next, I would tackle the 9.99% card first. Then I would build a small emergency fund. Next, I would tackle the lower rate cards. Finally, I would build a real emergency fund of 3-6 mos. salary over time.