I'm planning on going to vegas in july so i am saving money, but i do have balances on my two credit cards. Would it make sense to keep putting money into a savings account when i have debt? Should i pay off my credit card debt before saving money? Thanks for any suggestions!
Does it make sense to save money if you have credit card debt?
Unless your credit card debit is at a lower percentage than your savings account, you should put your money to paying down the credit cards.
For example:
Say the credit cards are at 12% and the savings account is paying 3%, you're 'making' an extra 9% by paying down the credit cards in this example.
However, if you have a credit card with a 'teaser' rate of 0%, and a savings account that's paying 2% I would say put the money into the savings account.
I hope that helps.
Reply:I Assume that you are planning to use the credit card on your trip to vegas if you pay it off instead of saving for the trip. If you are locked into a low interest rate now it would be better off saving money for the trip. If the interest rate could possibly go down then pay off the debt now and use the lower interest rate to pay for the trip.
You need to look at how you spend your money. Many people get into the habit of using the credit card and do not realize how much they are spending. This would make the case for saving the money, so that once you run out of money you are done spending. If you carefully keep track of your credit card purchases, either way would be fine.
Reply:Seems several hit it on the head. Why are you going to Vegas if you are in debt? That should be the real question. But, I will shut up, I went to Sydney, Australia; Chicago and California several times while I had credit card debt. LOL
But, to your original question. A few years ago I was about 11,000 in credit card debt and 13,000 down on my car. Now it is gone. I am lucky in that I have a job with unlimited overtime. So, I basically sacrificed 2 years of my life.
While I did it, I still put money into savings. And, you should too. Because, life still takes twists and turns. What is the point of paying off debt, and then having to turn around and use it. If you pay off 5000 in credit card debt, but the day after you finish you get a 1,000 medical bill, how will you pay it off?
I was basically putting away 100 - 200 every paycheck in savings, then 200 to live off and enjoy a little (that was groceries, going out, gas and all that) and then whatever was left towards credit card bills.
Again, I am lucky, and worked my tail off and made 82,000 in 2007. So, I was able to pay off my debts.
Reply:I'm in the same situation as you as is half the world. Credit cards allow you to still do things you want to do like go to Vegas. As long as you pay more than the minimum all the time and aren't stupid about racking up the debt, who cares. Have fun and save some cash for the trip and don't use the credit card at all on the trip to vegas. Get it? This way there is no further debt, and continue to make payments on the cards. Have fun, don't base your life on a few K in debt.
Reply:i think what they say is to always keep a savings in case there is an emergency or if you need to go somewhere. i think it works out as long as your cc's are being paid monthly, not overlimit etc and not accruing any penalty fees. thats what i try to do anyways. just make sure to pay everything on time or so that it doesnt get reported on my credit report. its always good to have money on the side. it would not make sense if you were behind on your credit cards and other bills. things that you need on a daily basis like electricity etc should be paid on time.
Reply:I think that if I had credit card debt I would not be going to Vegas at all until such time that it was completely paid off. After it was, then I could start saving for a trip to Vegas.
I am however a more conservative spender than most of my countrymen. Maybe even in the top 1/100%.
Reply:Prioritize paying off your credit cards to minimize debt and eventually, interest.
Reply:Suze Orman says to pay off credit card first.
Reply:You should pay off the debt first. The interest that you are paying on the outstanding balances is more than the interest than you are getting on your savings so you are just costing yourself extra money. Here is a plan that can help you. If you work the plan, the plan will work for you:
A. Have a garage sale and sell anything that you no longer use or need. It is just taking up your space and you can put the money to use paying off your debt.
B. Consider getting a temporary part time job and use that salary to pay off your debt quicker. Then you can get your emergency fund going and save up for your trip.
1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an "emergency fund" category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don't even have to worry about it. You must cut your spending and live on less than you make.
2.First get current on all of you debts, if you are not already, and make no more late payments, if you have had any. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.
3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:
To start :
Debt #1 (highest interest): minimum payment+ extra payment
Debt #2 (middle interest): minimum payment
Debt #3(lowest interest): minimum payment
Debt #1: paid off
Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment
Debt #3: minimum payment
Debt #1: paid off
Debt #2: paid off
Debt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.
That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.
4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.
5a. When you have your emergency fund in place, add a category for "fun" to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.
5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.
5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.
azalea tree
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