Paying Yourself vs. Paying Credit Cards

[Bluezy]

Re: Paying Yourself vs. Paying Credit Cards

I am a firm believer in having SOME savings put away for emergencies...to not have any standby monies would mean I would accrue a credit card debt to cover the emergency.

I has taken me over nine (9) months to get my emergent debt under control. Unfortunately, this emergency took what savings I had. HOwever, I was thankful for the savings...the debt was not as large as it could have been.

I located a 0% balance tansfer offer from HouseHold Bank, transferred the debt to that account, and will have it paid off in two (2) more months.

Bluezy

[jmjj215]

Re: Paying Yourself vs. Paying Credit Cards

You want to make sure that you pay the minimum amount on each of your other debts. Once the 24% card is paid off, then you can put all the money toward your 14% card. Once that is paid off, you can put all your money toward any student loans you have. Then you car. Then your house. This is called "snowballing" and is a very effective way to get out of debt.

I've built a tool in Excel that will help you (1) get motivated, (2) plan your attack and (3) keep track of payments. It's especially helpful when you have multiple debts as Terry mentioned above.

PM me if you'd like a copy.

[Cautious Spender]

Re: Paying Yourself vs. Paying Credit Cards

I agree. Pay off the credit cards FIRST... Add to the minimum. Remember your debt is also compounding so if a given credit card's interest is 14% - 15% you are getting a return. It may also be wise if you have savings to take all your savings out and pay off that outstanding credit card - it's like having an instant NON taxable income of 14% - 15% -- possibly even more. Remember you get no tax benefit from interest paid on credit card debt.

[BAGAGT1]

Re: Paying Yourself vs. Paying Credit Cards

Save at least $1K for a rainy day, then put all of your extra money to paying of your CC.

[jmjj215]

Re: Paying Yourself vs. Paying Credit Cards

Save at least $1K for a rainy day

This is crucial. Great advice.

[vince]

Re: Paying Yourself vs. Paying Credit Cards

Hi all

There is some good advice here I just joined. I too have an automatic savings plan where they take the money right out of my checking acount every 2 weeks. I have two credit cards being paid every week because I have it set up that each week rotates. xxx to discover this week xxx to visa the next week. I find it that this lowers my average daily balance instead of sending in a payment once a month.

The best part is the first payment a month covers the minimum payment so you never get hit with those 24% interest charges. If anyone is paying that its just crazy. I call the cc comapnies and got my rate down a lot.
Vinny

[claricem75]

Re: Paying Yourself vs. Paying Credit Cards

Thanks for this post, I found it to be extremely helpful as I am suffering in a similar situation.

Clarice

[vince]

Re: Paying Yourself vs. Paying Credit Cards

I figure the lower the daily balance is the better off you are. I had 4 credit cards and have eliminated one this way already.
Good Luck Vince

[terry1156]

Re: Paying Yourself vs. Paying Credit Cards

I was wondering something along the same lines... However, I have no CC debt, but I do have student loan debt. My ING account did have a higher interest rate than my Loan, but now, the rates went up on student loans. No, I didn't consolidate because my 3 other loans all have subsidized interest (where the Gov't pays the interest until I graduate) and I didn't see a reason to start accruing interst on loans that were staying put at the moment. I believe the interest rate on my student loan went up a little over 5%. My current balance on that loan is $2,748.73. My ING account is at $942.78 and earning 3% interest. Right now, I have my ING account set up to directly transfer $7 a week from my checking into my savings account. Should I keep it that way or pay around $30 a month into the loan instead? Thanks for any advice on this.

When the ING account interest rate was higher, if made sense to pay off as little of the loan as possible since you were earning money with the difference in ING. Now that the student loan is higher, it makes sense to pay off the loan rather than keep the money in ING. I would up the transfer to $30 or more if comforatable.

[baselle]

Re: Paying Yourself vs. Paying Credit Cards

The discussion has been good so far - but mostly tilted toward getting that debt down by any means necessary. That's important, but let me argue toward savings just a little bit, and its more than money...its forming habits.

I think its important to have a bit of savings (about a $1000) before you do the heavy duty pay-down-the-debt. Psychologically you need a cushion not only because things happen, but because its important when you are building good habits that you avoid bad habits. Dipping into your debt to get by only reinforces a bad habit; dipping into your savings encourages you to save a little bit more because you're thinking "Whew! I'm glad I had this."

I think it is also important to save a little bit even while you are paying off the debt, but just a little. The worst case scenario is having $10,000 in savings and $10,000 in debt! Again its a case of habit. Fiscal responsibility is more than just getting your debt down, its what you do after you pay off your cards. You need a good savings habit in place to pursue your goals; you get the habit by doing it and doing it through thick and thin.

[terry1156]

Re: Paying Yourself vs. Paying Credit Cards

I think it really depends on what is right for the person. As I mentioned in <A HREF="http://www.savingadvice.com/forums/showthread.php?p=18153">another thread</A>, trying to have savings while having credit card debt was actually costing me more money. People view money in very different ways and it's important to know which method will work best for you.

[Tree0164]

Re: Paying Yourself vs. Paying Credit Cards

Lisa
I would get the ING account to $1000. (Also remember when you need money in the spring as you did this past year-I am sure that you don't want to get totally stressed again) Then I would focus a gazelle intensity on getting the loan paid off.

[vince]

Re: Paying Yourself vs. Paying Credit Cards

I would also agree that keeping 1000 in the ING account does something to your mindset. It also prepares you to not be in credit card debt or any debt for that matter.