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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?
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 see no reason why you shouldn't do both. It just means you'll spend more time reaching each of them instead of just one. Honestly, this way drives me a little nuts, but it's what I'm doing. We had a year's worth of savings that we put into investments without thinking of emergency funds. Well, now we're kinda stuck saving up for the emergency funds. My husband suggested we could pull out a substantial chunk of the investments to get us to our goal (we're already halfway there), but I don't want to do that. It's additional work and I'd feel disappointed we messed with a product we just got up and running.I'm okay with waiting for the 8 months it'll take us to save. The important part is that we're (and you) are making progress. In your situation I think the advantages of doing one before the other cancel each other out.
If an emergency hits, you can put most things on a credit card. Maybe rent/mortgage is an exception, although some places allow rent to be paid by credit card.
If an emergency hits, you can put most things on a credit card. Maybe rent/mortgage is an exception, although some places allow rent to be paid by credit card.
^This. Assuming your CC debt is fairly high (10%+), then I'd shovel as much of the funds towards paying down the CC's. Money you put in an emergency fund is money that is getting under 1% that could go to reduce your double digit interest rate debt. *IF* an emergency occurs...you could always charge the expense on your credit card.
As noted, there are some expenses you couldn't charge, so if the cash advance rates are extortionate (which they normally are), then set aside some funds to cover expenses (like a few months rent or mortgage) for that, but the rest I'd use getting those CC's paid off.
If you have CC debt at low to mid single digit rates then putting more money in other places makes some more sense.
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.
IMO cashflow is what kills people when an emergency hits. If you have absolutely no income or cash that $50 minimum payment might as well be $1m.
If you have decent credit I would do a 1-2 punch of access to funds. Find an unsecured line of credit with decent limits (anything over $10,000 is good). Also save up $1500. Using the loan paperwork, figure out what your minimum payment would be given your interest and balance (i.e. $1,000 , $5,000 , $10,000 etc). Next calculate the bare minimum expenses you can get by with and anything your contractually obligated to handle (card minimums, house payment, car, food etc).
If SHTF and you lose your job, begin to withdrawal on your line of credit and use your savings to pay it's balance. Assuming you still have unemployment income, you may be able to last longer than you think (6 or so months?) which is a pretty long time. Yes you'll need to pay off the loan afterwards but who cares? You still have a roof over your head, your credit is intact (maybe taking a slight beating because of high util ratio) and you won't be a victim of credit card default rates at 29% interest because you've missed a payment on a single card.
Cash is always king but this is a short term fix. Shop for credit before it's needed, not after.
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