What's better, pay off or save?

**pennrj430** · 07-30-2007, 03:43 PM

Hi Kate, how much do you owe on your credit card, and how much extra money do you have a month?

**Kate Ann** · 07-30-2007, 04:05 PM

My cc bal is about $7000. (I just made a $1000 payment this past month and I made an extra car payment as well with my excess income but no money went to savings).

Extra income....well, I'd say about $1000-1200 per month for the time being, unless I have extra bills come up.

**pennrj430** · 07-30-2007, 04:20 PM

Well, I'm sure you will get a ton of mixed answers, but what I would do is pay off the debt, because you will end up saving more faster. If you pay the extra 1,000 (or more) towards the CC, it will be paid off totally in about 7 months. Then, you can save that 1,000 plus whatever the normal payment you were paying on the CC together. I've worked out the math, this is actually what I found to be the fastest way to pay off the debt and save the most amount of money in the shortest amount of time. I hope this helps.

**pennrj430** · 07-30-2007, 04:23 PM

By the way, I forgot to mention, don't pay any extra money towards Anything else. Pay only the minimum on everything, and use all the extra money to blast away that CC. If you want to pay off anything After the CC, then just take that extra money plus the normal payment you were paying on the CC, and blast away the next.

**Kate Ann** · 07-30-2007, 04:32 PM

how about?

I appreciate you responses. I'm definitely interested in zeroing out that cc bal. Just wasn't sure if it was better to have some savings as well.

I also heard that if you have a 5 year car loan, that if you make one extra car payment a year, then the loan will be paid in 4 years and one month. So, I just made the one extra payment for the first year. Bad idea?
(And I'm actually in a 6 year car loan).

Thanks! K.

**pennrj430** · 07-30-2007, 04:42 PM

No, I don't think it was a bad idea. And it is important to save. But... If you think about it, if you were to try to save and pay down the CC all at once every month, how much will you have saved and what would the balance of the CC be 1 year from now? If you do this the way I said earlier, by Jan. you will have a Zero Balance on your CC, and then by next July you will have about 7,000 saved up in cash (if you at that point save 1,200 a month).

**Hypersion** · 07-30-2007, 04:46 PM

What's the interest rate on the CC and the car loan.

**Kate Ann** · 07-30-2007, 04:55 PM

not sure. I'll check

I think my cc is 4.99% and my car loan around 7%...but that's guestimating.

**PrincessPerky** · 07-30-2007, 05:06 PM

I vote for yes...yes to pay off the CC, and yes to save...having something in the bank is a good idea in case of odd emergencies, but paying off the CC is better in the long run financially (though someone else may have an opinion as to the math on 7% vs4%- I have a mental problem with cc debt, so regardless I vote pay it)

Anyway, if you have 1K leftover, send 800 to the cc and save 200, not that much longer on pay off but in the meantime if you need to be in a wedding you have 200 for the dress, or if a family need arises you have a bit so working less doesn't hurt.

**disneysteve** · 07-30-2007, 05:47 PM

Originally posted by Kate Ann View Post

I think my cc is 4.99% and my car loan around 7%...but that's guestimating.

Is the CC rate fixed or is it some type of promotional/teaser rate that will shoot up at some point? If it is fixed at 4.99% for the life of the balance, I'm going to vote for not throwing a bunch of extra money at it. That is a very reasonable rate. Just make sure that you ALWAYS pay on time on the CC and any other accounts so that you don't trigger an interest rate spike through universal default.

Do you currently have an emergency fund? If you don't have at least $500-$1000 set aside, I'd do something like what PrincessPerky suggested. Put part of the available money toward debt (I'd vote for the higher interest debt - the car) and part toward building an EF.

Put the EF money in a high-yield online savings account. They're paying over 5% now.

**LivingAlmostLarge** · 07-30-2007, 06:38 PM

Keep a small EF, at least $1-2k I think. Then pay off debt.

**Kate Ann** · 07-30-2007, 09:57 PM

trying again (my last post went poof)

So, I looked up the interest rates. My cc is currently 3.99% on the $7k balance (maybe for only a little while longer, it was a special but I am not sure when it ends)

My car is 11.95% on a $20k balance, but my tax accountant writes off the interest I believe.

I do have a savings of approx $4600 so far. It's just if I lost my job say tomorrow, that $4600 wouldn't last very long.

So, with those figures in mind, should I just work on zeroing out the cc bal and forget saving for now?

**poundwise** · 07-31-2007, 03:08 AM

With that money already set aside, I'd take care of the debts. Eliminate the credit card and then, since you are interested in building a more secure nest egg, determine an amount to save each month to give you 3-6 months of living expenses in savings. Meanwhile, double-up the car payment, or whatever you can do toward it, so as to get your car paid for much sooner as well.

**disneysteve** · 07-31-2007, 04:22 AM

Originally posted by Kate Ann View Post

My cc is currently 3.99% on the $7k balance (maybe for only a little while longer, it was a special but I am not sure when it ends)

My car is 11.95% on a $20k balance, but my tax accountant writes off the interest I believe.

You need to find out when that 3.99% ends and what the rate will be after that.

The car rate is insane! I would look into refinancing that. Is that car used for business purposes. Otherwise, I'm not aware of being able to deduct car loan interest payments.

$20,000 is an awfully big balance. How much is the car worth today? Are you way upside down on that loan or could you sell the car and get something more reasonable?

Depending on when the CC teaser rate expires, I'd want to see you working to get rid of that car loan. Nearly 12% is just nuts.

What's better, pay off or save?