Debt or Savings!

[hausfrau]

This is a constant battle with my husband and I. Somehow he got $1500 into debt last year. It started off as a $300 credit card (his first credit card at the age of 25) and he did not tell me the limit got raised. Long story short, I was upset but now we are paying it off.
Well we have nothing in savings..maybe $300.. which is really not much. My husband puts $10 a week into there but I just found out that whatever he puts in there during the month he takes out and puts towards that credit card debt. So we've managed to get it from a maxed out $1500 down to $940 as of last statement.
I want to get the debt gone, but I want something into savings.. in case of an emergency.. auto repair.. something that's going to go wrong. He says if that's the case we can just use the credit card. He wants to put everything toward the debt, then start building savings.
I say we should pay off the debt AND put money into savings. My feeling is that if something happens then we are tacking on MORE debt that we just paid off!!!!!!! Then we'll have more debt and NO savings!!!

HELP!!! I do think I am right.. it makes sense to me.. but he thinks the chances of "something happening" are slim to none and I think he's wrong.. I don't want debt, and I never want to use the stupid credit card again!

[disneysteve]

You are both right. You are arguing philosophy. There are a few ways to look at this and no absolute right answer.

What is the rate on the credit card? Let's say it is 15%. The rate on the savings is probably 1% or less. Every dollar you put toward debt saves you 15%. Every dollar you put in savings earns you 1%. Which makes more sense?

Your concern is what happens when the car needs a new tire? You'd rather have a stash of cash and use that to pay the bill. That's fine and you are not at all wrong in thinking that way. Just realize that doing that delays the debt repayment and results in more interest paid over time. He's willing to take the chance that an expense won't pop up before the debt is repaid in order to speed up the repayment. If something does pop up, you'll charge it and that will slow down the repayment.

Either method slows down the repayment. Your way definitely slows it down whether that unexpected expense happens or not. His way only slows it down if the expense comes along before the debt is totally repaid.

Personally, I'd sleep better knowing I had some cash on hand, so I'd take your side, but his side, in the end, will work out just as well and might actually save you money over time because you'd shorten the debt repayment and pay less interest in the process.

The main thing is that once that CC is paid off, you both agree to never, ever use it again to make any purchases that you can't afford to pay in full when the bill comes each month.

[hausfrau]

Ok, at least I can somewhat make sense of what my husband tries to tell me. The way you wrote it makes a lot more sense to me and it's exactly what he tells me. But usually when he tells me we're both too stubborn to listen to each other!
I hope we can get this $940 debt paid off fast then.. I can't wait to see him shoveling $ into a savings account for once!!

[ActYourWage]

I would save up $1,000 for your EF and then attack the debt.

$940 is not a lot of debt, be thankful it is not 94k. Keep the I can't stand debt attitude and it will make things easier for the both of you later on.

[hausfrau]

I know $940 probably doesn't seem like a lot but things are incredibly tight right now. February 2010 will be my first month keeping track of every penny and enforcing a budget. I want to put every cent I can towards that debt so my husband will agree to save.

ETA- It's not the only debt we have, we do have a $6k car loan and some student loan debt but it's the only credit card we have.

[sandrark]

For what it's worth, I agree with you.

A co-worker had a HELOC that he was frantically paying down, as he didn't like the debt. He saved virtually nothing for his non-escrowed property taxes, figuring that he could use the HELOC when the time came.

When the time came, the mortgage company had downgraded his HELOC line to just what he still owed - so he couldn't draw on it to pay his taxes. He ended up getting an emergency loan with USAA, and is now paying off BOTH the HELOC and the USAA loan, AND trying to save cash for his next tax payment.

You CANNOT rely on a credit line for emergencies. They get downgraded and revoked and canceled ALL the time these days.

Sandi

[jIM_Ohio]

I would pay down all debt before having any money in a savings account.

[disneysteve]

I would pay down all debt before having any money in a savings account.

Can you clarify what you mean by "all debt", Jim. Are you just counting credit cards? What about auto loans, student loans, mortgage, etc?

[wnlbutterfly]

What about compromise....one month you put that extra cash into savings, the next month put the extra onto the credit card. Just a thought.

Jim Ohio: Really? Pay down ALL debt before having any savings? That goes against everything the "experts" have been saying. Not even an emergency fund? Just curious as to your thought on that.

[EconoMutt]

I'd just split anything you had left over between saving and debt payment.
That way you both win. :-)

[jIM_Ohio]

Can you clarify what you mean by "all debt", Jim. Are you just counting credit cards? What about auto loans, student loans, mortgage, etc?

Fair comment- pay off the cc debt mentioned in the OP
I did not see a place in this thread where other debt was mentioned...

in this case, pay down the debt because its a small amount, and its the cause of some problems in the household.

I would also advice OP that for "marital harmony" the spouse be considered in the decision making of financial matters.

[graceful]

You are both right. I would have agreed more with your DH a few years ago, that it was all about the interest rate.

However, as another poster pointed out, the credit card companies like to lower credit limits now. What happens if they lower his credit limit, just when you need it for an emergency? And you have no EF or credit line!

This may not be something he thought of and if you point it out, he may agree to save a little more for your EF before throwing everything at the CC.

However, if he still wants to funnel every extra penny to the CC instead of the EF, I personally, would look to applying for another CC, "just in case." I wouldn't actually use it, it would just be for TRUE emergencies since you have insufficient EF.

And if there comes a time when you actually had to use a CC for an emergency and both credit lines were available, I would put it on the card with no balance and pay it off in full when due. No interest for at least 20'ish days. If you put the charge on the card with the existing balance, interest accrues immediately from day of purchase.

Good luck!

[cicy33]

I agree, put some in savings and some on credit card. Obviously right now you guys are paying the minimum but even if you added 20 to the mininum and then put some into savings you are getting somewhere and you have a cushion to fall on in case of an emergency

[ontheroad]

Save First

I speak to you as someone in their 50's who learned this the hard way. You must have at least $1000 in an emergency fund first, otherwise, you will continue to feed the debt cycle. Your husband should consider selling some things to pay off his debt since it was his mistake, and take a part time job to pay it off. Either way, take the first $1000 you earn and put it in a safe place for true emergencies only so you will no longer need the credit card - close the account. Next, pay off your smallest debt first, then roll over that payment to the next debt until it's gone, then take both payments and apply to the next largest debt, etc. This is called the debt snowball from Dave Ramsey's "Total Money Makeover". We have paid down $19,000 in a year using this method. We did need our emergency fund once and immediately replaced it.

My husband's job is at risk now, so we are saving all our extra $$ and only paying minimum on the bills until we get at least a 3 month emergency fund in place, then will resume the debt snowball in about 2 months.

You have a good head on your shoulders! Keep up the great work and you'll have a prosperous future!

[cicy33]

This is a constant battle with my husband and I. Somehow he got $1500 into debt last year. It started off as a $300 credit card (his first credit card at the age of 25) and he did not tell me the limit got raised. Long story short, I was upset but now we are paying it off.
Well we have nothing in savings..maybe $300.. which is really not much. My husband puts $10 a week into there but I just found out that whatever he puts in there during the month he takes out and puts towards that credit card debt. So we've managed to get it from a maxed out $1500 down to $940 as of last statement.
I want to get the debt gone, but I want something into savings.. in case of an emergency.. auto repair.. something that's going to go wrong. He says if that's the case we can just use the credit card. He wants to put everything toward the debt, then start building savings.
I say we should pay off the debt AND put money into savings. My feeling is that if something happens then we are tacking on MORE debt that we just paid off!!!!!!! Then we'll have more debt and NO savings!!!

HELP!!! I do think I am right.. it makes sense to me.. but he thinks the chances of "something happening" are slim to none and I think he's wrong.. I don't want debt, and I never want to use the stupid credit card again!

We actually got one of those stupid cards too. It was with the intention of "building" my SO's credit and I am sure that it has helped but we have decided to get rid of it so effective the beginning of May we will pay it off in full. fortunately it is still below the 300 so it shouldn't be too hard. Not worth the trade off right now. We don't need a credit score for anything at this time so not to concerned. Our house was bought contract for deed for a very good deal. we have no intention of buying another car so no worries there. I am also concerned that if they raise the limit then SO will spend, spend, spend!