Pay a Debt vs Save

[Vriksasana]

Hi, this is my first post.

I have a $2,500 debt left on my credit card, and a $2,600 amount in my checking account.

I know some may say to pay off the credit card, however every May, June & July I have a chance of getting laid off from my current job, I work at a school. That money could be used for my traditional expenses during that time so I'm not worrying.

Has anyone run dealt with a situation like this? What did you do? My credit card bill is $60 a month which is manageable, but I know that interest costs in the long run.

[Vriksasana]

Note: This $2,600 does not include a $1000 emergency fund... at one point I did a Dave Ramsey style challenge. It's kept elsewhere.

[snafu]

Welcome to SA. We're a diverse bunch with different experiences and different views. Good on you for maintaining $ 1,000. EF. I hope you keep employment but worse scenario, if you lost employment June 2018, how many weeks of unemployment insurance could you get? How many weeks waiting could you cover your traditional expenses?

What is the employment situation in your community? Are you keeping your resume current? I mention, most jobs are found by referral so it's important to let people know you are interested in stable, full time employment if they have openings with their employer. Do you work another job June - Aug.. or 1st day of school?

I suggest adding up the interest charge on your credit card Jan. - Dec. 2017. That's your cost of 'renting' money! If employment is unstable, I wouldn't carry revolving credit. Can you explore transferring balance to a no/low fee 0% card, paying it off in carefully divided segments each pay before it expires?

With minimal info offered, Does employer offer any contribution to a retirement plan? Do you participate in that free money? I wouldn't be in a hurry to use the $2,600. Suggest moving$ 1,000. to double EF savings. Use the Snowball theory to escalate the current $ 60. payment to pay off the CC by your June payday.

[disneysteve]

How much do you need on hand to cover your expenses for May-July? I'd be focused on keeping your EF at least at that amount or more. When May arrives, if you don't get laid off, then go ahead and pay off the card.

In the meantime, is that $60 the minimum payment? If so, at least start paying more than the minimum. Even if you only pay an extra $5 or $10 each month, it will reduce your interest costs and get it paid off sooner.

Also, work on finding something you can do to keep income flowing during the 3 months you are laid off each year. Maybe a local business can use an extra hand. Maybe you have some talent or skill set that you can monetize during that time. Maybe in March and April you start scouring yard sales and thrift shops for merchandise that you can resell online when you're out of work. There are lots of relatively easy ways to earn some extra income which can help stretch your EF.

[moolahmonkey]

I was in the same situation

I got laid off as well in 2014. I knew it was coming but it came much sooner than I thought. I'd keep the $2,600 as a safety net. You never know when you'll need cash. I used my CC for food and gas to survived, and tried my best to spend only when needed, and I paid the minimum. I also qualified for unemployment benefits so that helped. I hope you have that where you're from. Keep your spending at a minimum and start hustling for a new and more stable job. There's a light at the end of the tunnel.

[Nutria]

Hi, this is my first post.

Welcome.

I have a $2,500 debt left on my credit card, and a $2,600 amount in my checking account.

How much of that $2600 do you need between now and next pay period? That's how much you really have in your checking account.

My credit card bill is $60 a month which is manageable, but I know that interest costs in the long run.

NO!!!!

Your credit card MINIMUM PAYMENT is $60 per month. Those two numbers are radically different, and should not be mixed together.

(I'm not angry or yelling at you, but just want to emphasize the error in your thinking.)

[Gailete]

Hello and welcome. I think the question I would be asking since summer is a very long ways away (I live near Erie, PA so if you watch the news at all you would know why summer sounds SOOOOO very far away!). How much do you have extra in each paycheck? Your credit card bill may have a minimum payment of $60 but what does it say in the line that if you paid this amount, you bill would be gone in 3 years and you would save this much in interest? If you can, pay that amount every month or at least the months when you can. Always round up to the nearest whole number or $5-10. The more extra you can pay each month, the better AND make payments whenever possible. Don't set money aside for the bill and then not pay it for two more weeks because it isn't due until then. As soon as you have the money, pay on the bill. That much less interest to pay in the long run.

Hope these ideas help, and no I don't think you should pay your credit card in full and leave yourself with only $100 in your checking account. That is cutting things to close to the wire.

[Jluke]

I'd start paying $100 per month towards the CC from January to April. re-evaluate then based on your job situation.

That's only $40 extra per month.

And to reiterate what others have said, that $60 minimum payment will get you nowhere with this debt. that is why credit card companies always WIN. well, except for those of us on here who utilize the rewards system to our advantage thanks to the many folks who just pay the minimum amount. Thanks.

[Vriksasana]

Thanks everyone for the advice! I think I will at least pay a good chunk of it now. Tax season will help with getting some cash to add to an emergency fund for possible layoff.

@DisneySteve the thrift shop/yard sale idea sounds genius!

[Gailete]

Just be careful when getting into the arena of selling on line. It isn't as easy as it used to be and small sellers are being stomped on.

[ndwilli6]

I recommend Saving.

Honestly,

I’d focus on becoming more aggressive with saving. That does depend on interest rates though – for instance, I have around $18k in CC debt, but only a few carry any interest. Majority (around 85%) carry no interest, as those cards have 0% for 12-months/15-months, etc. My recommendation would be for you to either look at CC’s with 0% interest, transfer the balance to one of those (ask for waiver) as well, and continue saving. Save a minimum of 10% of income, if you can save more go for it! That will give you time to pay off the CC before interest begin.

This year, I must eliminate a lot of my credit card debt because interest will begin, but over the years I have saved twice my annual salary so paying off the CC’s won’t be as difficult as it would’ve been if I would’ve paid them off before saving

[Gailete]

Honestly,

I’d focus on becoming more aggressive with saving. That does depend on interest rates though – for instance, I have around $18k in CC debt, but only a few carry any interest. Majority (around 85%) carry no interest, as those cards have 0% for 12-months/15-months, etc. My recommendation would be for you to either look at CC’s with 0% interest, transfer the balance to one of those (ask for waiver) as well, and continue saving. Save a minimum of 10% of income, if you can save more go for it! That will give you time to pay off the CC before interest begin.

This year, I must eliminate a lot of my credit card debt because interest will begin, but over the years I have saved twice my annual salary so paying off the CC’s won’t be as difficult as it would’ve been if I would’ve paid them off before saving

Even if you have your credit cards with only zero % interest for a limited amount of time, I'd focus on paying those off because eventually the zero % will end and suddenly you may be paying 24%! I worked with a girl once that was confused about a bill she had. She had bought a couch with no money down/no interest for 12 months. She couldn't figure out why at the end of the 12 months she owed as much as she had started out with! Apparently she had played the game their way and had only paid the minimum and nothing towards getting it paid off.

Many people don't understand these things and just because you have the zero %, doesn't mean if you want to flip it to another zero % there will be one available and then you are sunk.

[Benderz]

Non of this stuff works unless you are diligent with your finances. I was in your situation even worse when i was a little younger. I went crazy and aggressively paid off the consumer debt. Living frugal, working extra, and making smart decisions. The debt was mostly from fertility, but i avoided other debt like being content with old cars and less / no trips. Then when my cash flow was mine I was able to save / invest and have more fun. This sequence is more difficult in the short term but is a winner for the long term. You can do it. Good luck.

[ndwilli6]

Even if you have your credit cards with only zero % interest for a limited amount of time, I'd focus on paying those off because eventually the zero % will end and suddenly you may be paying 24%! I worked with a girl once that was confused about a bill she had. She had bought a couch with no money down/no interest for 12 months. She couldn't figure out why at the end of the 12 months she owed as much as she had started out with! Apparently she had played the game their way and had only paid the minimum and nothing towards getting it paid off.

Many people don't understand these things and just because you have the zero %, doesn't mean if you want to flip it to another zero % there will be one available and then you are sunk.

For me I focus on saving more so that I have more than enough funds to cover the entire amount owed on credit card. That's the only way to do it and succeed.

[Smallsteps]

I work for a temp placement company so as a contract ends sometimes the next week I am going to new place and sometimes the time between placement may be longer so I understand the need to have a bit of cash on hand. My current thing ends in about 4 weeks now they might extend or in the area I live in things pop up literally daily, so I have NOT stopped paying extra on my debt even knowing I could have a dry spell granted it is less aggressive of extra payments then I have been doing but it is still above minimum
With that being said transferring money to 0% cards in my opinion is kicking a can down the road. Even if no fees to transfer the companies who do this KNOW a good percentage of people will end up paying far more to make up for these "deals".
The 0% is the loss leader of credit cards and while some savvy people have used it for there advantage. Just like stores they know MOST will be paying more after lured in.