Does anyone have any advice about the virtues of paying off debt versus the benefit of having some cash on hand? For example, do you feel it's important to try to save money while you still have debt (especially credit card debt)? Or should most (if not all) your resources be put into paying down that debt?
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To me the equation is simple - avoid paying interest if you can as interest rates on debt are clearly much greater than interest rates on savings. So I'd pay down the credit card as much as possible as that saves you the ongoing debt/ interest charges - if you need cash then you can 'borrow' back by running the credit card up again. Best of all, of course, is to get to the stage where the credit card has no debt on it - then you can start to build a cash balance. That should be the objective first rather than keeping a credit card debit balance and building a cash holding
That's good advice. Pay off the higher interest rates first. Move any money you can to lower interest cards. In fact, talk to low-interest rate cards to see if they will lower the rate, or at least not charge a higher rate, if you move debt there.
THE FIRST STEP is to stop using your credit cards. Get an ATM card for your bank that has a credit card logo on it, if you don't already have one. If you need a credit card, this one will only take money from your bank account. Learn to live more frugally. That does not mean more poorly.
DO NOT miss a card payment. DO NOT pay the minimum, pay the monthly payment or more. When they are paid off, either cut them up or put away in a secure place.
STAY AWAY from the adds for cutting your debt. Even thought this is not Chapter 13 Bankruptcy, your creditors and anyone reading your credit report will consider it one, and treat you accordingly. It ruins your credit without the legal protection of an actual bankruptcy.
If you budget wisely, while you are paying off the cards, put money each month in savings.
If you get a large refund on your taxes, you are making an interest-free loan to Uncle Sam. You don't have enough deductions. Take more. More than nine will probably be audited, so don't get carried away.
If you can't live on half your income, get a second job.
The quickest way to make your money work is in real estate. Start to learn about different real estate investments now. Your first purchase may be a rental property, not your dream home.
Read Suze Orman--it's in the library.
p.s. If you don't have enough "stuff" around the house to make you a hottie at eBay, look again.
You need to have some savings on hand in case of an emergency, otherwise an emergency could put you deeper in debt. Once you've built up a savings account equal to a few months worth of expenses, then it's time to really concentrate on your debt. You might want to check out daveramsey.com for more info on getting out of debt.
I really like the books by Mary Hunt one I especially like is Debt Proof Living. She also has a website at www.cheapskatemonthly.com
In my line of home business I see this all the time. It is great to get out of debt quickly but if you do have an emergency what will happen. Will we go back to the credit cards? What you need is a plan, some kind of plan. I am on the NO MORE Mortgage Total Debt Elimination Program. www.NoDebt4U.org
We will be out of debt, including our mortgage in about 9 years. Refinancing is fine as long as you have a plan. Don't get into the refinance merry go round. Have I said it enough? GET ON A PROGRAM!! And make sure it does not ruin your credit. Save what you can. Once you are out of debt, make another plan for saving more money. Good luck!!
The only thing my husband and I try to do every month is pay more than the credit cards are asking. At least you will see your balance go down a bit faster. If you pay just what credit cards are asking for a monthly payment, Then most of that goes into the finance rate.
Also, One other tip we have been doing for a few years now, Is playing what we call the credit card game. You know how you get advertisements for 0% finance rate for one year, We then transfer a couple of debts over to that credit card, Keep a calendar on this, Because right after that one year commitment, They can go way up on finance rates. This gives you a solid year of no finance charges. And you can actually see the ammount decreaseing fast! When your year is up, You call them, Ask what the intrest rate will be, If it is over 4%, You can always do better. Then you do another transfer. In the meantime, We don't use any of the the cards we open just for transfers. Our goal is to get rid of debt in the best interest to our pockets possible! If anyone is confused by what I just tried to compact into a feedback, Please write me and ask. It is working to our best interest and that's all that counts!
Jackie from Massachussetts jakeonana AT aol.com
Make a budget. Make sure you are making enough to pay ALL of your expsenses month to month. If you aren't making enough, re-evaluate and cut some things. If you can't make ends meet, re-consider where you live, or perhaps you need another job. I have picked up several freelance jobs, and a lot of what I earn for that goes directly to our credit cards.
Now that you have a budget... how much is "extra"? Dedicate some of that to savings, so that if something comes up, your basic needs will be taken care of for the short term. Dedicate the rest to your credit cards.
We had two credit cards, and since we always paid on time, they offered a 6% interest rate on balance transfers. So we transfered the balance from one card to the other. So part of the balance was at 6% and the rest was at the original percent. It was easier for us to handle one monthly payment, and the interest rate on that one part of it was lower, so it was gaining less interest. We are very close to having a zero balance!
I like being able to pay my credit card online; I can even make several payments within one month. That way, when we have extra money, we can pay down debt right then rather than spend it on something we don't need.
Check out Dave Ramsey's website. He has a great book called The Total Money Makeover. It is very easy to read and takes you step by step on how to get out of debt.
My husband and I are using the Crown Money map found at crown.org. They teach you to first start with a $1000 emergency fund then start paying off your consumer debt - credit cards, car payments, etc. Then you add to your fund so you have enough monthly living expenses on hand in case of emergency. It's working for us.
I would say put a little in savings while putting a lot in debt elimination. If you pay off the lowest-balance debt first, then apply what you were paying on that with what you are already paying on the next lowest, you will soon have that paid off. Then take that total, along with what you've been paying on the next lowest and get that paid off. We found a credit card offer for 0% on balance transfers if you make two purchases a month. Yes, I feel silly making two purchases of less than $1 each per month, but it keeps us at 0%! (And those are the ONLY purchases per month.) In just a little over a year, we have gotten that balance to almost zero. When it reaches zero, I will call and have that account closed--why have a card that will just be a temptation? It will be so exciting to have NO DEBT! We are working on building a savings--when the debt is gone, all the money we were paying on the debt will go into the savings--it will grow much faster! To put credit card purchases into perspective--figure out how much that item that you "must" buy will actually cost you when it is finally paid off--is the $20 "bargain" really worth the $50 (or more) you will have paid for it? Once you get the balance to zero, use credit cards ONLY if you can pay the balance when the bill comes in. If you can't pay the balance, you are digging yourself into debt again.
Check out DaveRamsey.com! He is a great resource for paying down debt and having an emergency fund. He suggests having $1000 in savings before paying down debt. After debt is paid down, he suggests having 3-6 months in your emergency fund. He has really helped out our family. He even has a daily radio show!
DaveRamsey.com (more than enough author) suggests having an emergeny fund of $1000 saved before you begin paying off debt to keep Murphy's law from visiting and to eliminate having to rack up more debt because of the car breaking down or some other siutation arising. Check his books out of the library. common sense and creative ways to reduce debt and build wealth
pay off high interest credit cards; the interest on the credit cards will eat up any interest you would get by saving that payment...try though to save a bit each payday. it is amazing how much we "piddle away" without thinking about it.
I can highly recommend Total Money Makeover by Dave Ramsey. We have been following his teachings on finances and have really turned our life around. www.daveramsey.com for more info. Also check out Financial Peace University, 13 week course taught by Dave, just search for a class near you. Good Luck
To pay (down the debt) or not to pay is a Shakespearean dilemma. In fact, it is an ancient argument for ages. A Sankrit proverb ("Rinam kritwa ghritam pibet") proclaims that "Borrow to enjoy!" Many modern management practices follow the fiscal principle of "using other people's money" to carry your business. In short, it is as difficult to resolve this dilemma as to seek moral dispute whether euthanasia is right or wrong. The quickest answer to these dilemmas may be: "It's all in your head!" But it is easy to note pros and cons of this easy way out.
It may be right when you are unable to pay full cost of a house and the lender is offering it to you at a reasonable rate of interest for a mutually agreed period to accept the offer, Because it fulfills the needs of both lender and borrower without exploitation of the other party. But it may not be right at all even if both the borrower and lender mutually agree to all terms which may or may not be exploitative, to borrow to gamble. Credit card issuers apparently do not lend you money to gamble away, but they do encourage you to pay for instant gratification of your desires, small or big, without thinking of the consequences. Again, it must be noted that they may entice you but not force you to utilize the credit they have offered. It is YOU who decide to accept or ignore their encouragements. That is both in your hand (pocket) and in your head.
So, it is you who decide to enjoy with or WITHOUT borrowing. If you think you have ability to repay the loan with interest and you think it is a "Reasonable" rate, go right ahead and enjoy. If not, RESIST the temptation and DEFER the enjoyment until YOU think you are "Reasonable" in borrowing to enjoy.
I am going to personally recommend CCCS. Consumer Credit Counseling. Not to be confused with any other agency by similar name. They will try to negotiate with your creditors to stop interest charges and set a low monthly payments for your bills. You would send one payment for all debts to CCCS and they will disburse them amongst your creditors monthly until paid off. It's simple and effective. Keep the extra money you save by being on CCCS.
When your debt is paid ( you must not open any new credit lines while on CCCS) get a SECURED ( prepaid ) credit card for $300. Once a month, right at the beginning of the card cycle, buy $20 worth of gas for your car with the secured card, and then IMMEDIATELY pay the $20 off. Do not buy anything else with the card. This will keep your good credit intact ( you need SOME activity to do so) Stay AWAY from the revolving interest cards. Period.
As soon as you can, or once you have your total debt paid off and have a secured card, begin aggressively saving money.Allow yourself a small cash purchase 'treat' a month UP TO A CERTAIN AMOUNT WITHIN BUDGET if you must. But save. Even if you have to staple $20 bills together! Just do it. Live simply. It clears the head and heart. I wish you the very best.
I'm not sure about having $1000 in savings, when the credit card companies can end up costing you 15, 20 or even 30% interest every month. I'll grant you, having money in the bank is nice, but it can just sit there & not do much for you, while you are paying high interest & lining the pockets of the credit card companies. I understand you have to have money for emergencies, but each month you aren't paying all you can to those companies, everything you have charged, costs you more. I operated under the premise, that if something did come up then of course I would have to borrow, cash advance or something.
The way I paid off my debt & got my boyfriend, now husband out of debt, was we consolidated 2 or more credit cards, closed the excess cards, & when at all possible, paid in increments of $100 plus interest. No matter what the account was we were paying on, i would look at the statement, took the $100+ & found the interest, added to the base payment of $100 or more & of course, not use the card again. That was each card, when they got lumped together, then i paid them $150 or $200 plus interest, or $300 if you can afford it. This makes the debt go down quickly & u can really c the difference every month. At the time, my boyfriend was only paying the minimum & he was always going over. I nearly had a fit when I saw the statements & how much he had paid in over balance fees, cause of course, paying the minimum never gets you out of debt. There were things that came up from time to time, but for the most part, that debt went down really fast, & it was cool, after a few months of looking at the statements & checking how fast it was going down, we would get excited to pay as much as we could every month.
Now we have more cards, cause sometimes we need to get something that costs alot & we r able to pay them off, usually in a month, but I pay all the bills & monthly expenses every month on one card & pay it off ea month. We have gotten into the habit of not carrying a bunch of debt, so the extra cards are just in case, sometime things just happen. This by the way looks really good on your credit history. After we took care of his debt & kept our noses clean for a while, we can walk in any car lot or bank & get just about anything we want. Our credit score is really high. It's really gratifying.
In these days of high interest credit and low interest savings yields, I would, in fact, I am paying off debt. But I do already have some savings in case of an emergency. But I don't have an incredible amount of debt. I owe a little bit to Sears, which I try to keep active, simply because these days they just close it out without any activity. I never know when I might need an appliance serviced or repaired. I also keep a major credit card active, but pay regularly. I am trying to pay off my dental surgery (no insurance coverage) ahead of schedule, so I don't have to worry about that any more. I'm almost there, and then I'll put more into savings. I'm luckier than most. My "LITTLE" trailer is payed for and so is my old car. But I am on a fixed income so the cost of things these days takes it toll.
Good luck to you whichever you decide.
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