Sit on savings or become DEBT FREE?

[sofocused978]

Brief background: 31 years old, been in debt since I was 18 basically due to spending foolishly and living beyond my means. Towards the end of 2008 I started to get serious about getting out of debt but then I lost my job was unemployed for over 2 years. I recently started a new job back in April of this year. In 08 I had about $30000 in debt, now I am down to $10030. I own my car outright and live extremely cheap in a unit in my mothers 4 family home.

I'm currently in a spot where I don't know what to do and would like some feedback. Up until I was back to work I was living off of savings for about 6 months once the unemployment ran out. Once back to work I replenished some money that I had spent in savings and in June started going nuts towards knocking down my final debt.

June 1st I owed basically $15000 to Citibank at 5.9% juice. As of today I am just about to fall below $10,000. What I've been doing is cashing my paycheck and sending it off to Citibank as soon as I get home. No fun at all. Just slaving myself to pay Citibank. If I keep at it like I'm doing now I will be making my final payment to the devil sometime in June of next year. However I'm sitting on a large amount of savings which some may consider foolish while carrying debt. Time for some numbers.

Debt:

Citibank $10030 @5.9%

Savings:

$9500 @ 0.0%


After next week my debt and savings will be neck and neck. 2 weeks after that I should have about $1000 more in savings than I do in debt which is getting me thinking. Once I have the $1k surplus should I just payoff the damn credit card and declare myself debt free? Once paid off my monthly expenses will be $330!! I bring home about $2400 slaving away at work each month so It would be possible to spin up 6 months of expenses in an emergency fund in a month maybe a little more. and have some sort of peace of mind once again.

As far as I know we are booked solid for the next few months at work. So building an EF quick in case of emergency shouldn't be a problem. I seriously barely spend any money on myself these days aside from a calzone from the pizza shop every week. I'm just not sure if being debt free will feel better than having a large safety net in the bank.

So pay off the card and start 2012 debt free or sit on the cash and keep paying off the debt?



PS: I really really really hate my job. I also don't want to be a slave to debt much longer.

[snshijuptr]

According to my calculations, if you only spend $330 a month then a 6 month emergency fund would be $1980. Once your debt is paid off, will you have additional expenses, such as your mother charging you rent?

Figure out your post-debt expenses and I would aim for a 3 month emergency fund. Then throw the rest into the debt right now! Next week when you get your paycheck or in a couple weeks, you can pay off the last of the debt. The get you efund back to 6 months expenses. After that, talk to your mom about paying a bit of rent. You don't want to freeload for too long lest you alienate those who love you.

[disneysteve]

How are you surviving on $330/month? Are you paying any rent? If not, why? Was your mother just helping you out while you were unemployed?

I would agree with the previous poster. Pay off the debt. Rebuild the EF. Thank your mother very much for helping you out and start supporting yourself.

[riverwed070707]

$330 seems like enough for...well not much. Does your mom buy your groceries and do your car maintenance too? No cell phone? No gifts? No medical expenses? No retirement contributions?

I think it's great you can get yourself out of debt so quickly, but I agree with the others -- start supporting yourself. I'd keep $1000 in savings and throw the rest at the CC and then just keep making large payments until it's gone. Then worry about savings.

[DebbieL]

Wow - $330/month for expenses is so low. I agree with the others. Pay down the debt, then start contributing to your own living expenses. You are old enough that you should be supporting yourself. It is great that you've had this opportunity and could pay down your debts, but it is time to enter the real world IMO.

[sofocused978]

The $330 a month is

Car Insurance $70/Month
Rent $240/month(I pay my mothers cable/internet/phone bill which is $170/month plus heat and electric for my unit. She has a tenant who pays the majority of the mortgage.
Cell $25/month

My numbers are off a bit as I don't include food in my expenses($40/week). I live 2 miles from my work and don't even burn through $10/fuel a week. I'm pretty much a homebody with no social life. The plan was to spin up $3600(6 months at $600/month) for an EF.

I guess I'm gonna hold back $1k and ship off the $9500 payoff in a couple weeks.

[DebbieL]

Congrats on paying off the debt. I still strongly suggest you start paying some rent to your mom, whether another tenant covers most of her mortgage or not. If it were anyone else in that space she'd be charging them rent, no? It is a very important step towards maturity.

I think it is great you have paid off all your debt. I also think you can stand to put a little bit of fun money into your budget. We all need to do something that we enjoy.

[naomibatac]

Congrats on paying off the debt. I still strongly suggest you start paying some rent to your mom, whether another tenant covers most of her mortgage or not. If it were anyone else in that space she'd be charging them rent, no? It is a very important step towards maturity.

I think it is great you have paid off all your debt. I also think you can stand to put a little bit of fun money into your budget. We all need to do something that we enjoy.

This is very true. After all the efforts we exerted and the stresses we had, we deserve a little celebration for being out of debt. It is always a good feeling to be able to a eliminate credit card debt. Congrats.

[Eric80]

i think it is always better to become debt free as the interest on those debts will increase - the sooner your out of debt the better it will be for you. if you are unsure as to what is the best way for you to deal with your debt then speak to a debt advisor.