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Can anyone give me a bit of advice I'm trying to budget for the new year and wondering if you would save for Christmas, car repairs, savings etc if your still carrying a balance on a line of credit and credit card?
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For me, it would depend what sort of rate I was paying on the debt.
At the end of 2010 when I began budgeting for the first time in my life (first written budget), I did have some credit card debt. I budgeted a fixed amount towards debt, and budgeted some savings for those irregular expenses too. But, I had the debt financed at a very low rate.
If you're paying a high rate and can't get it reduced by refinancing, that's different. -
Unless the interest is very low you're better off paying off as much debt as you can. That said, if you forgo saving for car repairs etc. to pay off debt, and then your car needs repair and you have to put it on a credit card, that's kind of defeating the purpose.
A general rule of thumb is to save $1,000 for emergencies, then pay off your debt, then build your emergency fund up to 3-6 months (or more) of expenses.
I've been doing both, as well, but only the debt repayment is part of my budget. I've been building up my emergency fund with snowflakes (small amounts of money from a variety of irregular or unexpected sources -- gift cards, bottle returns, store credits, etc.) -- it may not sound like a lot, but it adds up. I'll have saved a little over $5,000 by the end of the year. I also have a rewards credit card that I use for almost everything, and pay off every month. The rewards will cover my Christmas spending and then some -- I just finished up the year at $826.Comment
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moneysavinm, welcome to SA. Are you creating your 1st budget or do you prepare a budget most years? It really helps to subdivide current spending as Needs, Wants and Savings from Net, not Gross income. Like doingitallwrongy saving , I too encourage you to make a start by saving $ 1,000. as an Emergency Fund so that you're not adding to CC while you're trying to pay it down. Do you wish to include baking/food costs in your Christmas savings funds?
Interest added to CCs and LOC are important to pay as they increase your debt. I've found it helpful to use a lot of small reductions in each category and even stop some non essential services for the short term, to get control instead of money controlling me. Do housing costs [rent or mortgage, utilities, insurance] cost more than 28% of your income? Just now gas prices are dropping to help lower transportation costs. It's important to review vehicle insurance with an insurance broker for appropriate coverage, check KBB [Kelly Black Book] value since insurance pays assigned value, not sum owed and the deductible is appropriate to value.Comment
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