Saving or reducing debt?
Posted ByDue to a divorce and employment issues, I have $30k in credit card debt in the high 20% interest rates. I only have $2,000 in savings. Job security is in question, should I put every extra penny into savings until the job security stabilizes, or should I take advantage of my extra cash flow by finally making a dent in my credit card debt?
Due to a divorce and employment issues, I have $30k in credit card debt in the high 20% interest rates. I only have $2,000 in savings. I have a new job that gives me an extra $2k monthly, but I don’t know how permanent this job is. Should I put every extra penny into savings until the job security stabilizes, or should I take advantage of my extra cash flow by finally making a dent in my credit card debt?
My credit is fair (scores range 660-690). and I know paying off debt will improve it, I’m just worried that if I put all my extra $2k/month twds the credit cards, then lose my job, I won’t have any money to pay my bills. My monthly expenses come out to roughly $1500.
My monthly expenses come out to roughly $1500. I just got a new job that leaves me with an extra $2k monthly to either save or reduce debt.
My credit is fair (scores range 660-690). and I know paying off debt will improve it, I’m just worried that if I put all my extra $2k/month twds the credit cards, then lose my job, I won’t have any money to pay my bills. .
7 Comments
May 30th, 2010 at 8:36 pm
You make more by paying down your credit cards, unless you are the only person in the country with a 20% savings account.
Paying down a card doesn’t reduce your spending power if thats what you are worried about. It would obviously give you more credit to spend, and help build your credit score so that when you are out of this mess you don’t have black marks all over the place for unpaid bills.
May 30th, 2010 at 8:59 pm
Save. Most financial experts insist the every American should have no less than six months worth of living expenses in the bank before paying off high interest debt. Remember, you can always default on your credit cards or re-negotiate the terms of your debt if your financial situation should change. What do you value more – your ability to keep a roof over your head and food in your belly (should you lose your job) or your credit rating?
May 30th, 2010 at 9:08 pm
I would transfer the credit card debt to those zero percent ones, and pay off as much as possible of high interest debt also. You won’t pay them off at 20% ever, unless you get that rate down.
May 30th, 2010 at 9:15 pm
Save until you have three to six months worth of expenses in a savings account. Then hit the debt hard. Or once your employment situation stabilizes then keep a months worth of expenses in your savings account and hit the debt with the rest.
It won’t help you to lose your job and have no credit card debt but also no money to pay for food, clothing, and shelter. As was mentioned before you can default on credit cards and still eat. You can negotiate a payment plan and still live in your house.
May 30th, 2010 at 9:51 pm
pay the minimums and save like crazy until the employment stabilized- because you may be heading into an emergency. As soon as the employment stabilizes, take your emergency fund down to $1000 and pay off credit cards with your emergency savings. (During this time, I would also search for lower interest rate cards or loan-maybe your credit union). Once you have the debt paid off save for 3-6 months of expenses.
A good budget will make all of the above work. I suggest you read and use the budget, savings and debt snowball ideas given in the book: The Total Money Makeover by Dave Ramsey. Ramsey’s website also has budget forms you can print for free.
May 30th, 2010 at 10:03 pm
Right now you seem to be in survival mode. It is more important to keep a roof over your head and to have a little money put away for emergencies.
May 30th, 2010 at 10:16 pm
Hi,
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