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I would get $1000-2000 put away ASAP into an emergency fund. Then devote 100% of leftover monthly income towards knocking out credit card debt. Then, switch back to e- fund mode until you reach 6-12 month's of expenses set aside.
Ok so I have a question, but first a little background.
At my present job, realized I wasnt making enough, kept coming up short on bills and resorted to credit cards (stupid, I know). Now in a $9000 credit card debt hole. So fast forward to present time, FINALLY secured a new job that would allow me to not only pay all my bills, but leave an extra $500 a month. My first thought was to immediately plow this extra cash into paying down the credit cards, but on the flip side I have NO savings whatsoever, so if an emergency hits I will be screwed. So do I spend the first 3 or 4 months building up the savings, or ditch that and focus on paying down debt? Really prefer to focus on cc cards due to interest compounding. What do you guys think?
I'd get about $500 to $1000 in savings fist, then put the rest toward the credit cards.
Emergency fund, for sure. Get at least $2k in that & then do an 80% credit card / 20% savings split. Don't rely on your credit cards to bail yourself out; that's how you got in this situation in the first place.
what are the rates- if they are high pay off the credit cards and it's not even close. if **** hits the fan you can use the credit cards again. but no point in paying interest when you don't have to.
logically and mathematically paying interest to have an emergency fund makes absolutely no sense.
if you choose to save for the emergency fund you are guaranteeing you pay interest on whatever amount of money you are putting in your emergency fund,if instead you put that money towards your ccs the only way you pay interest on that money is if the emergency happens.
Emergency fund, for sure. Get at least $2k in that & then do an 80% credit card / 20% savings split. Don't rely on your credit cards to bail yourself out; that's how you got in this situation in the first place.
all you're doing here is relying on your credit cards to finance your emergency fund.you're paying interest on the money you're "saving" 100 pct of the time instead of a much lower pct of time.if this guy has no cc debt would you tell him to take out a loan at credit card sized interest rates to have an emergency fund? of course not. this is no different.
Initially, I would go with the posters who are telling you to get that emergency fund first. Having minimally $1000-$2000 in the bank for disasters keeps you from getting into trouble with your CCs again. Then, I would take the CCs out of your wallet and put them in a safe place so that you would only use them in the direst of emergencies until you get them paid off. After you have your emergency fund well funded, then I think the 80-20% (CC/savings) is a good balance.
If your credit is good, you can look around for better deals. Many companies offer 12/18 months at 0% interest to transfer your balance. Be aware that these lenders will also charge transfer fees so read the small print to be sure that the deal is a good one. A 1% transfer fee on $9000 would be $90 while a 3% fee would be $270 and a 5% fee would be $450. Is that less than your CC interest over 12 or 18 months? At 0% interest, putting $400 a month directly on the principal would take $4800 off your debt in 12 months and $7200 off in 18 months (minus the transfer fee).
If your credit is not good and you have multiple CCs, you can look into a credit counseling service. These do not offer "bill consolidation loans" but they will negotiate with lenders to get you lower rates on your CC debt. They will require you to close the credit accounts that they are dealing with but you don't have to include all of your CC in the program if you would like to keep one open for emergencies. You will send them the lump sum payment, and they will distribute the payments to the lenders, with the most money going to the highest-interest debt to pay that off first.
Saving is a high priority. But the most important thing about saving is simply to start doing it. $20 per pay period. $50 per pay period. Start small. Work up to big later on. Meanwhile, most credit card carry rates are killers. As others have pointed out, paying more CC charges to finance deposits into a low-yield savings or money market account is mathematically silly. If you have access to credit, it might well make sense to take out a loan to pay off the credit card debt. Especially if you can join a local credit union, this would be something to look into. Remember that credit unions don't have stockholders, so they work in the interests and for the benefit of their members. Otherwise, I would certainly focus first on paying down the CC debt however you can until it is all gone. Credit cards are wonderful things. As long as you never carry a balance on one.
It seems to me that there is quite a lot of Holy Grail-ism going on with repsect to "emergency funds". I think that there are many people who should simply take a step back and think through what an "emergency fund" is actually supposed to be in the larger context of what sensible plans and overall approaches to one's financial circumstances are actually supposed to look like.
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