Sinking Fund vs Debt

[veronak]

New budget period started today. Added the funds to my sinking fund ($117.70 first time ever), I couldn't help but wonder if I should add this amount to CC3. I did pay an extra $114, knocking CC3 down to $586; however, I want this thing gone!

If I add the sinking funds to the CC debt instead of saving, I could have this credit card 💳 paid off by mid-February. My 2018 goal is to pay off a CC each quarter, so I know that this will be gone soon. However, the drawback of using the sinking fund is that, I wouldn't be socking away the car insurance, and will continue to pay monthly, that I hate. In addition, I wouldn't be putting away for car maintenance, dues, and Christmas/birthdays. What would you do? Put the money towards debt, and then catch the sinking fund up? Or keep adding to the sinking fund, while paying extra to the debt?

[disneysteve]

Do you have an emergency fund? If so, how much is in that?

I just want to make sure what the sinking fund is. Is that money you are setting aside for known future bills (insurance premiums, dues, etc.)? That's what it sounds like. If that's correct and instead of putting this money into the sinking fund you use it to pay down the credit card, would you still be able to pay those bills when they come due? If so, then go ahead and pay down the debt.

[creditcardfree]

Here is her blog with more information. She does have $1,000 emergency fund. But there is a lot of debt to work on.

[scfr]

New budget period started today. Added the funds to my sinking fund ($117.70 first time ever), I couldn't help but wonder if I should add this amount to CC3. I did pay an extra $114, knocking CC3 down to $586; however, I want this thing gone!

If I add the sinking funds to the CC debt instead of saving, I could have this credit card 💳 paid off by mid-February. My 2018 goal is to pay off a CC each quarter, so I know that this will be gone soon. However, the drawback of using the sinking fund is that, I wouldn't be socking away the car insurance, and will continue to pay monthly, that I hate. In addition, I wouldn't be putting away for car maintenance, dues, and Christmas/birthdays. What would you do? Put the money towards debt, and then catch the sinking fund up? Or keep adding to the sinking fund, while paying extra to the debt?

Great questions.

I can only imagine how frustrating it must feel to have so many conflicting financial priorities going on all at the same time and trying to figure out what to do. God bless you.

On one hand, having the sinking fund is really important, because it is for irregular expenses that you know are going to come up.

On the other hand, I understand how it might cause you anxiety seeing money sitting in the bank when there are large amounts of debt that need to be paid off.

The suggestions I have are small but here they are:

1. I see that your Baby EF is now at $1,074. Is the $74 from interest earned? If so, could you take the $74 and use it to pay down some of the cc debt, leaving the Baby EF at $1,000?

2. Regarding the car insurance, how much do you pay annually in "service fees" (or whatever the insurance company calls it) for paying monthly instead of paying once or twice a year? Roughly, what do those fees roughly translate to in terms of an annual "interest rate" (annual fees / annual premium). What is the interest rate on cc3? Which has the higher "interest rate"? If the "interest rate" on the insurance is higher, then I'd continue to fully fund the sinking fund and pay the car insurance annually. However, if the cc3 interest rate is higher, then I would continue to pay the insurance monthly, reduce the amount that goes to the sinking fund, and put any extra available funds toward cc3. I'd continue to pay in to the sinking fund, but at a reduced amount only for the other irregular expenses (car maintenance, dues, and Christmas/birthdays). Once cc3 is paid off, I'd again compare the interest rates on cc4 vs. the fees for the car insurance and decide what to do then.

This is just what I personally would do, and may not necessarily be the "right" answer for you. I think you also need to look at what would help you the most emotionally. Which approach will help you stay the most motivated?

[Gailete]

I'm still not sure what a sinking fund is. I don't think I have ever heard the expression.

[disneysteve]

I'm still not sure what a sinking fund is. I don't think I have ever heard the expression.

I'm familiar with the term. I just wanted to make sure OP was using it in the way I think.

A sinking fund is typically where you park money that you know you will be spending at a future date. So things like insurance premiums, tax payments, professional dues, etc. would go into that fund. It isn't "savings" really as the money is already spoken for. You just don't have to send it in quite yet.

[Gailete]

Okay, just is a weird word for it, to me anyhow.