The reason Why I SAVE instead of paying off debt is.....

[Savingmonster]

Its a RUSH!! I actually feel like I have something. It just feels good having some kind of financial security, something in the BANK, you know?


I know some may disagree, but I need some opinions.

I've paid 3 credit cards totalling about 10k the past year and a half. I only have one now about $2, 600. But I've decided to take a break and SAVE instead and make min payments. BUT, I will pay out that 2, 600 before the end of 2007. I am just taking my time with it. I've tried getting the bal transferred to a 0% interest card, which will make more sense of course.

I also have $20,000 student loans. I finally got around to setting up a plan where I pay $100 a month (I was avoiding it), which was incredibly dumb. I don't wanna pay any more that 100 bucks a month. I did all this work in school, I deserve to have something. My plan is to have about 70k plus in savings, then I can pay off the school loans a little bit more agressively (maybe 3-4k yr). I'll prob save 70k in about 3-4 yrs I think.

Im I CRAZY? I've taken this approach because it simply does NOT feel good to have nothing in savings and wasting all this money on debt payments that I am eventually WILL pay off when it's all said and done.

I felt the biggest thing were those Credit Cards, which I paid off except one!!, which is a piece of cake. PAYING off those cards TOOK a lot of pressure off me, after paying it off I felt like the Incredible Hulk and now Have a much better understanding of the importance in saving, etc. I am far from perfect though, its a start.

I supprised my self, because since I started saving in JUly, I saved about $3,500, so I am on track to reach my 8,000 goal by X-MAS.

again.............................. Im I CRAZY?

[Kris10Leigh]

Ooooooh, can't wait to read the replies on this one.

Here is what I just did for myself. I put all my debt on a 0% interest card until Oct 2007. You said you have "tried" to do this. That word "tried" needs to be taken out of the scenario as it is something that you must "DO" for this to work. If your CC carries interest over what you make in savings, then you are WASTING money by not paying down debt aggressively.

We are starting to make minimum payments only on our 0% credit card. Instead, we aggressively putting as much money as we can into a savings account that earns 4.5% interest. This makes sense to me because we are EARNING this extra money while we save up enough to pay off the cards in full.

I don't think it's at all wise for you to take your time on any of this debt. Have you played with the debt calculators that tell you how much money you are wasting in interest? Like you student loans for instance?

[creditcardfree]

Yes...it will be interesting to see the replies. Here's mine.

I completely understand wanting to have money in savings. It's a very good idea.

However, Kris10Leigh, is right. It is not wise to take your time paying off debt. The more time you take, the more of your hard earned money will go to the CC or student loan. Do you want them to have more of your money than they really need?

I say pick a number, over $1000, but less than $10K and keep that as your savings or emergency fund. Then send the rest to the CC and student loan. At the rate you are saving you'll have those knocked at so fast so hardly realize it. This way you get the best of both, some security by having savings and the joy of paying ot the debt once and for all.

I think it is just as exciting to see a balance go down on a loan, as the balance to go up on a savings account. Just think how much pressure will be off you with out the last CC and the loan. Then every dollar is yours to SAVE. Whee!!

Those debt calculators tell the truth...so check them out. It is your money!!!

[Broken Arrow]

Ooooh boy.

Well, no, I can't say that I agree with the logic. If you rummage through my blog, you'll see that I've crunched some numbers, and I think it will show that you'll generally get more for your money by paying down debt versus saving.

However, part of this debate has to do with what one's goals are. My goal is to go as far as I can with the amount of money that I have, despite the risks. On the other hand, if the goal is to minimize the risks in return for a slower going, than saving would be the way to go.

Of course, we should all do a bit of both, and certainly, there is absolutely nothing wrong reveling in the joys of saving. That's certainly much better than wallowing in the pit of conspicuous consumption!

Well, I don't think you're crazy. In the end, we all have to decide what works best for us, and so long as we are making progress (in our own way), I think that's all it matters.

[Dixiechick]

Originally Posted by Savingmonster

I know some may disagree, but I need some opinions.

Well, my view is a little different than others, but here goes. I'd save up until I had 6 months of living expenses saved (what it costs you to live each month including all bills and other expenses times 6). Then after that, put all that "saving" money on debt until paid off (unless it's at 0%). Once debts are paid off, continue saving. That way, if something comes up unexpectedly, you can cover it with your savings and not have to "charge" that expense. Break the cycle! If your savings have to be used for some reason, plan to budget repaying yourself as well as your debts. I'd repay myself at least 25% of what I was paying on bills...

Just my system, YMMV...

Dixiechick

[PauletteGoddard]

For me, it was not knowing about the debt in the first place. I live with someone who would hide the bills while I funded the Emergency Fund. Then he'd forget where the bills were, and when I answered the telephone calls I occasionally encountered some snarky accounts payable CSR who took me for a deadbeat. I ended up having to snoop around and record payment addresses in my address book, and send payments to shut these hags up.

Me: "Why, oh why, did you not take money out of the Emergency Fund to pay off these bills?"

Him: "You were so happy about the growing balance on the statements. I didn't want to be responsible for the EF going down."

I hate it when I'm supposed to be responsible for finances and nobody tells me about bills.
It's like in "Maxed Out" where the husband of a missing debtor is fielding calls from bill collectors, and he tells them he doesn't know where she is. "Your wife can find the credit cards, why can't you find your wife?" How can family members not know what's going on? Pretty easy, especially with separate accounts.

I have paid off debt. It is a bigger rush than saving in an account offering piddly interest. Getting a title to a vehicle or a house is a spiffy moment of celebration.

[RJB1180]

Well Haters now is your chance.

I have to agree with OP in part.
1. if the CC goes to 0% then there is no reason to pay first.
2. Student Loan debt is considered good debt, yes i know I may be booted for those words, by both the banks and CC co. First it is and installment loan so all payments are equal, no surprises, second based on the numbers, it sounds like OP will be in a big tax bracket, SL interest is deductible.
3. By saving OP is avoiding charging.
4. OP needs a rebate card, it will consolidate spending and allow tracking of costs.
5. Saving those kind of dollars will lead to other good debt, house etc.

If CC is not 0% then pay it off, you already have the money in savings, the only way not to is if you are expecting big bills, med./dental, house closing costs etc

[Savingmonster]

Ok, let me rephrase that, "I MUST GET A 0% CARD TO TRANSFER MY REMAINING BALANCE".

I respect everyone when they say things like, "Pay off the School" loans, etc. Eventually, I will pay it off. But you have to understand, the reason I am NOT paying it off agressively as I should is because I feel I need a security blanket over my head lol. My train of thought is different I guess. It took me a while to finally start saving/paying myself first.

In logic, a person will lose some money when 'taking their time', but to be honest, it sounds silly but, I wouldn't even mind loosing say 1 or 2k a year but saving 15-20k a year. By paying the min in loans of say $100 a month, I understand that is money I can keep for myself. I can't really explain it, but it just feels better to SAVE NOW. Its really a psychological thing, I guess.

Since it took me so long to start saving and it's something I always had a problem with, it's something I must do now. I just feel like I've proven myself that I can get out of debt by eliminating my CC. I have not proven to myself that I can SAVE however. I am the type of person that needs to actually see it, thus the 70k goal. But lets say in two years I have 40k in the Bank, I would not have a problem paying off the entire 20k school loan and if I lose 2-3k, I would not even mind. As long as I have some money in the bank (which is 20k), I will feel great. It's just a Psychological thing.


For me, I don't even think about earning interest while Im saving, although I am. The only reason I opened an online account is to control my spending habits even more. I am with CaP one and I can't get that money out instantly, which is good. Most of my spending are on impulse. I do realize I am losing a little or paying them more by not paying it off ASAP!.

[Savingmonster]

By the way. I was reading this site for a while before signing up and you guys have helped me and encouraged me to become very deciplined over the past year and a half or so. Thank you very much. I never thought I would be down to only 1 card with a bal of only $2600.


But you know what, I might have to pay another $3,000 because someone I knew pulled some identity theft crap on me and now the collections/lawfirm is making their little threats. This got me soooo angry!!! The actual bal on that card was about 2,000 however. I guess they are charging interest.

These threats? Are they legit? If so, how long they usually give you before they actually 'sue'? Im ignorant to this stuff, so excuse me. After a while can I make a deal with them?

[RJB1180]

identity theft is serious there are a lot of info on it in the fatwallet forums. I would notify all your credit reports immeediately. It doesn't matter if you knew the person, it only matters if you knew about the fraud.

[Savingmonster]

Originally Posted by RJB1180

identity theft is serious there are a lot of info on it in the fatwallet forums. I would notify all your credit reports immeed iately. It doesn't matter if you knew the person, it only matters if you knew about the fraud.

This happened about 2 years ago actually. At the time, I didn't know who it was but I did report it to all the credit report companies. It was a strange process though. But as you can see, it really did not solve anything, because collections ARE still sending me letters, etc.

[autoxer]

Originally Posted by Savingmonster

But you know what, I might have to pay another $3,000 because someone I knew pulled some identity theft crap on me and now the collections/lawfirm is making their little threats. This got me soooo angry!!! The actual bal on that card was about 2,000 however. I guess they are charging interest.

These threats? Are they legit? If so, how long they usually give you before they actually 'sue'? Im ignorant to this stuff, so excuse me. After a while can I make a deal with them?

If it isn't your debt, then you should dispute it.

What is the interest rate on the last credit card and what is the interest rate on your student loans? That would be a big factor on whether I would pay them off before I started saving.

Instead of focusing on the balance of my savings account, I focus on my Net Worth. When I do that, it doesn't matter if I put the money in savings or put it towards debt, because either way will increase my Net Worth. Reducing liabilities feels as satisfying as increasing assets.

[Savingmonster]

Originally Posted by autoxer

If it isn't your debt, then you should dispute it.

What is the interest rate on the last credit card and what is the interest rate on your student loans? That would be a big factor on whether I would pay them off before I started saving.

Instead of focusing on the balance of my savings account, I focus on my Net Worth. When I do that, it doesn't matter if I put the money in savings or put it towards debt, because either way will increase my Net Worth. Reducing liabilities feels as satisfying as increasing assets.

I completely understand what you are saying. The Loans were an investment in my career, I understand it has to be paid back. It was really the CCs that were a pain in the rare end. The CCs I had before were like 18-24% I swear. I was ignorant. But now I only have one and I WILL take that one down as well. I prob will negotiate with my creditors to bring down that one for $3000, which was actually $2,000. I am still very bad with money, but I am 100 times better than before.

[LuxLiving]

uhhh, why can't you do all three?

1/3 past - CC/student loan
1/3 present - live/eat/enjoy
1/3 future - Savings

Really feeling pressured? Take a month off and then get back up on that horse and ride hell-bent for leather to debt freedom!

I'm repeating myself but think of it as one glass being emptied (debt) and another being filled at the same time (savings). At some point they pass each other and you are on the uphill side heading for the barn!!

[Broken Arrow]

Well, I do highly recommend to crunch the numbers. I'm working on my student loan right now, and the if I paid only the minimum on its 20 year term, I would have paid an additional 20k in interest alone! Granted, that's with a much higher balance than yours (almost 40k at 5%). However, I have also crunched some student loan numbers for a buddy of mine who only had 8k and at 4%, and his came out to more than 12k! In other words, if we paid only the minimum, we're both on track to pay roughly 50% of our original balance in interest alone!

A student loan may be a necessary evil to invest in our intellectual, emotional, and financial future, but I think it's dangerous to consider any debt a "good" debt, as it could lull one into thinking that going into and being in debt is an acceptable way of living. I know it seems extreme, but losing money is still losing money, regardless of what kind of debt it is.

Again, my advice is to at least crunch the numbers so that whatever you do decide on, at least you know where you stand and why it makes sense when compared to your overall financial picture.

[parafly]

I can agree with the OP to a certain extent. However, the CC debt has to be a first priority because the interest is probably pretty high.

Personally, I have a student loan at 2.8% and a car loan at 5.9%. I choose to make the minimum payments on these loans because I am trying to save for a downpayment on a house. I realize that paying more than minimum on the car loan would be financially more beneficial to me, but that would delay the opportunity of buying a home for myself.

[greedy4chips]

Savingsmonster,

Apparently you have not read enough posts yet. What I mean is everyone here has had some sort of debt problem mostly because they did not understand how to handle money. Pay off your debts now, because more will come along faster than you can imagine, especially when you lose that good paying job.

You also have all those wants in life and I can see the attitude already, I got so much income I can afford this $40k SUV, $4800 living room set, $4k plasma tv, etc. Oops big cutback at work, doh! Now what?

I don't hire male babysitters to watch my kids. Reason being, I don't let foxes into the chicken-house to watch chickens.

When you justify debt only because of substantial income, you are inviting disaster!

[Savingmonster]

Originally Posted by Broken Arrow

Well, I do highly recommend to crunch the numbers. I'm working on my student loan right now, and the if I paid only the minimum on its 20 year term, I would have paid an additional 20k in interest alone! Granted, that's with a much higher balance than yours (almost 40k at 5%). However, I have also crunched some student loan numbers for a buddy of mine who only had 8k and at 4%, and his came out to more than 12k! In other words, if we paid only the minimum, we're both on track to pay roughly 50% of our original balance in interest alone!

A student loan may be a necessary evil to invest in our intellectual, emotional, and financial future, but I think it's dangerous to consider any debt a "good" debt, as it could lull one into thinking that going into and being in debt is an acceptable way of living. I know it seems extreme, but losing money is still losing money, regardless of what kind of debt it is.

Again, my advice is to at least crunch the numbers so that whatever you do decide on, at least you know where you stand and why it makes sense when compared to your overall financial picture.

Yes, I understand. I will not make Min payments for 20 yrs, I realized I can't do this with the CCs thats for sure. But I understand the importance of paying both loans and CCs as fast as possible. After about 3-4 years of saving aggressively, I will pay the more more aggressively. Most likely 5k a year on the loan. The loan is something I know I can tackle. I can pay off the student loan in 1 yr if I pay if off as agressively as I save, but saving and Knowing I have the money gives me a Psychological advantage even knowing I am losing some money. Now if I was not saving and just spend spend spend, then it would be a big problem!.

I live in NYC and i've been layed off before and it's a pretty messed up feeling living off credit cards and not having any money in the bank to run to.

[sweeps]

Originally Posted by greedy4chips

I don't hire male babysitters to watch my kids. Reason being, I don't let foxes into the chicken-house to watch chickens.

[Ima saver]

Savingmonster, Iknow where you are coming from. If it makes you feel better to agressive save for a while, then do so. We all have different situations. Some will call me very stupid, but whenever I have to take a loan to buy a piece of property, I do an in house loan with the bank. My loan stays here locally and I pay a slightly higher interest rate. It really motivates me that I can walk into the bank anytime I want and pay extra on the principal.
In the 19 months I have had the loan, I have already paid off $40,000 principal of the $64,000 loan.