Save money or pay down debt?

[Lostsoul33]

Hi everyone. I just want to start off and say that this is a great forum with lots of wonderful advice.
Now,here's my question. I do have a budget in place but I'm confused as to how much I should be saving and how much should be put towards my credit card debt. I am eager to get the credit card paid off and have been putting all of our money towards that but that means nothing is going into savings. The interest rate that we're paying on our card is 1.9% so, how do I determine how much should go where?
Thanks for all of your help.

[cercis]

Re: Save money or pay down debt?

This is something really only you can decide. When money was really tight for us, we chose to pay off credit cards, knowing that if we needed money, we could use credit cards to pay for whatever we needed (including the mortgage). We have credit limits of $40k - which at the time was a lot more than we made annually. This may not work for everyone, if you don't have enough of a limit to get you by, you must have the cash put away.

Other people can't stand the idea of not having an emergency fund of 3-6 months before they start aggressively paying off cc debt.

[sweeps]

Re: Save money or pay down debt?

1.9% is pretty low. Is that a teaser rate? You can start saving in an online savings account for roughly 4%. Even after taxes you'd be coming out ahead. And as cercis alluded to, having an emergency fund is pretty important. Start putting your money towards an EF.

Of course, this advice changes if the 1.9% rate becomes 20% next month.

[cercis]

Re: Save money or pay down debt?

It's important to note, most cc's have "universal default" now. If for any reason, you are late on ANY bill, they will raise your rate - often to 29%. And if it was reported in error, good luck getting them to lower it back.

[ChillPhatCat]

Re: Save money or pay down debt?

If you have job security, paying off debt is usually better, but in some cases it's better to save. If you can get your money making a higher percentage in savings then by all means save, I like to have a good month or two worth of money in checking or savings in case of a worst case, but after that point I spend all extra money on CC debt because the larger I have in emergency funding the better. I always strive to keep my debts at lowest possible APR's and my profits at as high of a percentage as possible, when one rate overcomes the other I do my best to pay it off as quick as possible.

[Bluezy]

Re: Save money or pay down debt?

Everyone has their own theory towards the issue of saving vs. paying down debt. But I think you will find overall that any debt hanging over your head will keep you from saving much at all...and I'm speaking of revolving credit card debt, not mortgage notes.

I agree that you should look carefully at your rate of 1.9%, and proceed to pay down this debt as quickly as possible. How much total is owed on the card? The higher the total, the more you should pay towrds its elimination.

Good luck to you!

[PrincessPerky]

Re: Save money or pay down debt?

I can't say what you should do, but what I did was get 1000 in 'dropped money' in my checking account, stopped overdrawing it! I just 'dropped' the 1 from the thousands place, and pay bills from what is left, including all we can on the CC.

1000 is not enough to live on long, but it was enough to get a washer without borrowing any, a psych boost when things were bad, nothing more really. Though it might have helped our price on the machine, if I had unlimited credit (which for all our debt we have great credit) I might have spent more.

[Lostsoul33]

Re: Save money or pay down debt?

Okay thanks very much for the advice. I double checked on the 1.9 rate on the cc and that is good until November 2006. It changes if I'm late on my payment, but I can make sure that doesn't ever happen.
Right now it's just the hubby working. I'm a stay at home mom.
At times, we aren't real confident as to the job security with hubby. There are days where he has punched into the clock and there's nothing at all to do. That's scary.
I have been doing a bit of saving and mostly putting money on the cc. I really hate having debt hanging over my head. However, I think I will focus more on my savings for now just so that we have some security. I've always had it in my head that if something ever happened, we would just use our credit cards. I know, not a good mindset and definetely something that I need to change. After all, that's how we got into cc debt in the first place. The debt owing on the cc is just under $3000 and this is the only card that we owe on.

[jmjj215]

Re: Save money or pay down debt?

I vote for getting a cash EF of one month's expenses. THEN start paying on the CC debt (despite the low rate).

[Ima saver]

Re: Save money or pay down debt?

Lost soul, the experts would tell you to pay off the cc first, because most credit card rates are 10% and up and you can't earn that much on your savings.
In your case, since the rate is so slow, I would advise you to put as much as you can in your savings until October, 2006 and build up your savings.
Then when the rate goes up, you should pay all you can on your credit card. Get aggressive this summer, have a garage sale and get rid of a lot of stuff you don't need.
Save part and use the rest to pay down the credit card.

[Lostsoul33]

Re: Save money or pay down debt?

Thanks Ima saver, that's definetely what I'm going to do. I have my budget sheet out right now and am just working on it. The garage sale is a great idea and I do have lots of stuff to get rid of. Also hubby reminded me that we'll be getting income tax money back so I'll do the same with that as well.

[kristinecfp]

Re: Save money or pay down debt?

Why can't you do both? Start saving a small amount each month for your emergency fund, then retirement, WHILE you are paying down your debts. If you wait until you pay off your debt to start saving, it could be too late. Don't underestimate the power of compounding (i.e. a person who invests early and for just eight years will have more money at 65 years old than will someone who starts late and invests for nearly 40 years).

[Ima saver]

Re: Save money or pay down debt?

You are right Kristine, it is important to start saving early. since her debt is at such a low interest rate, I would advise her to save every penny she can until the rate goes up in November, then she will need to pay more than the minimums every month. Using her tax money and garage sale should give her a big dent in that credit card debt.

[qmeltri]

Re: Save money or pay down debt?

I would put $1000 in EF. Then start to pay off your credit cards. DO NOT count on your credit cards because you will end up in the same spot

[Tree0164]

Re: Save money or pay down debt?

I would make sure you have a small EF and then aggressively pay off the credit card. Even though you have the 1.9% rate until November that can change at anytime.