Payment to CC vs. Emergency Fund

KrystalKF · #1 (**permalink**) 01-24-2008, 03:33 PM

I have $440 in my savings account that I was going to use to help pay taxes on my car but now I don't have to.. Should I put it towards my credit cards or just keep it in there for Emergency? Here are my cards:

Discover- 16% $820
AmEx- 4.99% $2788

I am also getting paid tomorrow and will be able to pretty much pay off my Discover card or at the very least get it to $200. I have a lot of disposable income so I can get these paid off soon. I'm thinking I should leave the $400 it in my savings so that I can see it grow with each paycheck and get more motivated to save. Do you agree?

vsjhoc · #2 (**permalink**) 01-24-2008, 04:05 PM

Suggestion:

Leave the $440 in savings (is it in a high interest-earning bank like GMAC?)

Tomorrow, pay off all the Discover debt.

Use your disposable income to pay down the AmEx debt as fast as possible.

Regularly deposit as much as you can of your disposable income into savings. Set it up as an automatic deposit for every pay day.

Good luck!

disneysteve · #3 (**permalink**) 01-24-2008, 04:09 PM

I agree that you want to get rid of that 16% debt ASAP. If you can do that with tomorrow's paycheck, great. If you can do all but $200 of it, then take the other $200 from the $440 in your account, leaving you $240 in savings.

The AMEX rate is pretty reasonable and about the same as what your savings are earning. I'd want to get rid of that soon, but wouldn't be in as much of a rush as with the 16%. Be sure you are paying more than the minimum - as much as you can afford. You definitely need to not use your cards anymore for things you can't afford to pay for in full when the bill comes. And each paycheck, designate part of the money for savings (10% is a good starting point) to build up your EF. Once your EF is fully funded, you can start investing elsewhere.

Aleta · #4 (**permalink**) 01-24-2008, 04:41 PM

I agree with what Steve suggested. Pay off that card even if you need to take a portion from your savings. With the rates as low as they are now, it doesn't matter. What matters is the 16% interest rate. Imagine after you pay it off it's like making 16%. I agree with the same as the 10%. You're debt isn't that much that you can't get rid of it.

jIM_Ohio · #5 (**permalink**) 01-24-2008, 06:35 PM

Pay off all the debt higher than 4% interest rates before having a savings account.

aida2003 · #6 (**permalink**) 01-25-2008, 09:33 AM

If you qualify to receive a tax rebate from the gov't, after you get it, I'd suggest to apply it to AmEx debt. But Discover must go ASAP.

anonymous_saver · #7 (**permalink**) 01-25-2008, 12:21 PM

disneysteve's advice is good. Pay off your 16% card off with your paycheck and from your savings. Then, don't use this 16% card again until you have all of your CC debt gone, then use it every once in a while ONLY if you can pay it off before your bill is due. In other words, never keep a balance again.

After you pay off your Discover card, save up $1,000 in a high interest online savings account that has at least 4.5% interest. Once that is saved, start thinking about other goals you may have such as a down payment, emergency fund, retiremetn savings, etc.

Do you put up to your match in your retirement account? This should be done before anything else.

Good luck!

By the way, why don't you have to pay for your car taxes any more? If you have a lot of disposable income, I'm assuming you live at home still?

ncbuckeye · #8 (**permalink**) 01-25-2008, 12:53 PM

I understand where you're coming from saying that you think if you kept the money in savings you would be more motivated to save, however it makes more sense to go ahead and pay off the credit cards before you start really focusing on building your savings.

That said, I would still want to keep maybe $100 in the bank for savings, then you can still feel like you're saving and pay off your interest chargin debts.

Good luck!

KrystalKF · #9 (**permalink**) 01-25-2008, 05:09 PM

I work for a very small company and we don't have any sort of retirement options. I'm going to have to look into doing it on my own.

I have a lot of disposable income because I live with my boyfriend who owns his own house so I don't have any rent. Also, my parents pay my car insurance. My only bills besides the 2 credit cards are my cell phone ($85), car ($200) and braces ($200).

I didn't end up having to pay my taxes because my I went and took care of all 13 of my boss' cars so he said to just go ahead and pay mine, too.

I'm going to take your advice and go ahead and pay off the Discover Card. I had a bit of o/t so I can actually pay it off without touching my savings and still have enough to live off of until my next check.

disneysteve · #10 (**permalink**) 01-25-2008, 05:25 PM

Quote:

Originally Posted by KrystalKF

I have a lot of disposable income because I live with my boyfriend who owns his own house so I don't have any rent. Also, my parents pay my car insurance. My only bills besides the 2 credit cards are my cell phone ($85), car ($200) and braces ($200).

I didn't end up having to pay my taxes because my I went and took care of all 13 of my boss' cars so he said to just go ahead and pay mine, too.

A things here concern me.

If you have "a lot" of disposable income, why do you have $3,500 in CC debt? Why are your parents still paying your auto insurance? Why aren't you contributing to household expenses with your boyfriend?

Also, if your boss paid your taxes, you may need to report that amount as income.