Is it better to save or pay debt down?
 

I do my banking online, with that, I can and do use automated payments on a weekly basis to pay my various debts. I have set it up to pay about 200-400 a month on various credit cards with fairly low balances(the highest is 1800) spread across 4/5 cards. i have a total debt of less than 6000. would i be better off saving this extra or keeping up the program. As I paid off a bill completely, I roll over that weekly amount to another payment (the highest balance or interest rate) to sustain the same outlay weekly. I have paid 80% of my total debt off in like 10 months with this plan(save my mortgage) but it is beginning to tax me in that I feel nervous when i have less than 1500 in my checking. I have always had 4 months moertgage in the bank in case of emergency (loss of job for my wife or I)
what is the consensus? keep the status quo or start saving? My estimate is that I will be debt free (short of the car, student loans and mortgage) in febuary.

pay off debt, no question...not only is it the most finacially sound decision, it will help you sleep better at night ;)

Agreed. You have an emergency fund, and you should be able to pay off the debt quickly. It's a no-brainer. Once you have the debt paid off, then you can leverage ALL of your income to save/invest. Just remember, you can always quit payments to savings if you have a hard month, but you can't quit paying your bills. The less bills you have, the easier it is.

Pay off the debt and then you will have even more money to save!

At the rates the credit card companies charge, it always makes more sense (to me :) ) to pay them down/off. You're unlikely to achieve a comparable rate of return on your investments to offset the CC interest charges, so get rid of those pesky debts & interest charges as quickly as you can. Of course, make sure you have sufficient liquid assets to handle unexpected emergencies. :)

thanks, once i have the debt paid, I can redirect these into savings. This online program is available to anyone with Chase, i honestly don't understand why everyone does not do it..I save my time, stamps and it makes paying my bills brainless

Eventualy the goal here is that I am hoping to be able to buy another home(and use this one we are fixing up as a rental). Really this seems to be the only real path to financial independence that most people can follow. My wife and I make a reasonable living (70k combined) with no kids(can't have any :( ) So we are trying to become financially independent and then adopt.

Nick, sounds like you're on a great path! Jim makes a good point, you'll never get PAID as much interest for your savings as you are PAYING for your CC debt. Knock them out, cut up the cards, and move on to enjoy life.

Nick - Having been in a similar position several times over the years, I have found that paying off the CC's is the smart thing to do, but only works if you are operating with a realistic personal budget. (My 0.02 cent + 12.99% interest).

Tom

Here is a question that has come up between my wife and I:

Should we pay off our cc debt with all avaible funds or should we set money aside for pending expences like our kids private school tutuion or her up coming $1.5k for v-ball club fees? Should we be saving to offset future debt?

We have a similar thing, we are almost done with the house (just need to re sheet rock) except that we need a back deck built. The estimates are like $6000 for the deck. I have decided that rather than take out the $ from the savings/emergency fund, or take out from the payments, I will ebay all the extra stuff i have accumulated over the years...car parts, cycle parts etc...
Hope to have this raised by October with just ebay sales supporting it

i mean this in the kindest way:

No effing way i'd drop $1.5k/yr on a sport with no future for my child while carrying credit card debt.

She has a strong future actually. She was on the National team and won the coach's outstanding player award. I have friends that spend much more on other sports on a kid w/o talent.

The cc debt is not that great.

$1.5k/yr is nothing... try having a kid who plays hockey.

I agree with this in principle but it's actually not 100% true. If you're careful and pay attention to your card offers, you can effectively ensure that any balance you carry is 0.0% apr by taking advantage of balance transfer offers. If you're paying a dime in interest, it's too much.

But you have to be disciplined enough to keep on top of it and actually put time into researching/applying/transferring/tracking all this stuff. If you do, you can save a ton.

As with a lot of things, the price of doing nothing can get pretty steep. Lazy people pay interest.

i really didn't mean to be flippant in my response; just can't see dropping that kinda dough when it's borrowed from citibank or wamu or whomever.

perhaps i'll feel differently when my little guy is older.

we have been..I get them and we use them..that has been very helpful in doing this...I take the balance transfered themn divide it by the time frame in weeks till it has interest(...subtract 3 for good measure) and then it gives me the payment amount i should pay...so i save the interest on that sum.

The credit card companies are geting wise to this. It's not as easy as it used to be.

too many credit cards and and new credit cards will negatively effect your credit score. Even with no balance- they want to see just a few established cards that you use and pay on time.

If you are looking at buying a new house I wouldn't keep piling on new cards.

I find it much easier to pay off the small balance on our one card each month.:D

ditto

I paid off my entire CC in one payment. Just got completely sick of the thing. None of my payments were going to the principle, so I just said "Screw this!" and wrote the check.

Not having that albatross hanging off me is the best feeling I've had in a very long time. SmileWavy

why 4-5 cards? I have one card that I use (and get united miles for) and another that is backup in case of emergency. All the other ones are cut up and don't get used. I only carry a balance on the backup card and that is a couple $K sitting at 1.9%. I'll likely zero that out next month though. Then the extra money goes into the bank to try and replace the hole left by racing for the past couple years :p

All you boys should be commended for paying off you cc debt every month. But the thread is about having debt and managing it until it is paid off.

WIth 4-5 credit cards with balances, my advice is to take the one with the highest interest rate and pay it down fastest while making minimum payments on the other ones. When it is paid off, cut it up. Repeat until all are paid off. Keep one card as a regular card, one as an emergency one. Ditch the rest of the cards. I don't understand the need for more than 2 cards.

It pleases me to read of so many posting here who make sound financial decisions, are working to become debt free. Debt free when entering or nearing retirement makes things much easier.

these are not all m/c or visa..I have those and a few others(lowes and HD fior the house) that we use. There are some things that I cannot just pay off every month..the lowes for example has 0% interest for a year..so we use them for our home repairs (which have been substantial).
Realistically I asked more about what a better management would be, and it seems that i am going about it the right way. The problem with "cuting up the cards" is that as you do this and cancel off the accounts, your debt to cfredit ratio goes up...therefore as a result your credit goes down. For example, I have cancelled some cards with 0 balance that had 10k credit limits..when i pulled my next credit report (i do it every 2 months) my credit took a good hit as the balance to available credit went up.. so it is not just that easy. I am looking for a balance and to control these to my best benefit. I do make habit of dropping any card that has the highest intrest and did away with all Capital one cards when i read the horror stories involving them upping interest without warning to good standing customers(we had 7 total cap one cards...) I have also tried to cut down the ones with low limits to get rid of them.

The one card that I have absolutely refused to get is a gas card...no way am i putting gas on a credit card..that is just dumb

Thank you...you just cannot beleive the satisfaction i get knowing that every month i move closer to being free...and how easy it REALLY is if you utilize the tools you have. we have gone from living check to check...being ripped off by a builder for a large amount of cash (70k total) ..having the house wrecked as a result to, almost all of out cards at the limit to being 95% done with the house...almost debt free and looking forward to life in 3 years:eek:

Cut up the card, don't close the account.

I have credit cards that I got at various times for various reasons. Paid them off, cut up the cards, and never use them again. Doesn't mess with credit score at all.

I pay for all my gasoline with my CC. I get airline miles for it. But all my CC purchases are on that one card. I don't use any other ones.

that is a good idea...

There are a lot of people that would argue that.

We put almost everything we can on a credit card (one) and then pay it off each month. We then use the 'points' for travel. (thats a whole 'nother debate).

Pay down your cards. You can use available credit in an 'emergency' until you have actually funded some savings.

Good advice here. Cindy & I have 2 credit cards, Mastercard & Visa. We also have several gas cards. All get paid in full, every month, when the bills arrive. They key is to keep track of your spending, to treat the cards as the cash they really are.

Nick..Kudos to you. Keep it up! No debt is a wonderful feeling. Gas card...well, I'm about to leave on a road trip while Cindy has the kitchen remodeled. I can't stand the chaos of remodeling. I'll use the cards, but she will write the checks when the bills arrive. In other words, still treating the cards as the cash they are. I just don't feel comfortable walking around with a huge wad of cash...especially since this road trip will involve pool halls. ;)

Agreed to a point - one thing that will help your FICO is having a low "utilization" % of available credit though. As with most things, there's a compromise. Sometimes the best thing to do is close accounts (to reduce the overall $ number of available revolving lines, even if utilization % is low), sometimes it's not (to show a lower % of utilization), sometimes it's to open new accounts, sometimes it's not. You have to research and determine what your most pressing need is at the time - for most, this is making DAMN sure they're not paying 20% or 25% or whatever the hell kind of criminal rate these guys are charging the indiscriminate these days...

Obviously the best thing to do is have one (or two) and simply keep a zero balance on it each month, but for those who find themselves carrying a balance, the best thing you can do is pay 0.0% APR and no fees. Doesn't matter how "wise to it" the banks are getting - there will always be someone out there willing to give you a 0% APR balance transfer, unless your credit is horrendous.

I'm just speaking from experience here. I've used the transfer method to good use in the past to rebuild after a layoff and resulting need to use my credit lines. It sucks, but it's called "making the best of a bad situation". I think that's more useful advice to some than simply looking down your nose at them and telling them what they probably already know (that the best thing to do is not carry a balance). I'm simply trying to provide some information that might actually have some real-world value, rather than snooty platitudes.

exactly

Pay it off.

and this seems to be the general response from most here. It's also what I do.

My wife and I put everything on a credit card...and I mean everything. We even have some of our bills automatically charged to our credit cards. We do this because we get cash back. Last year we earned over $1000 in free money. If I paid cash or check for all that stuff we'd be out $1,000 so I'll never understand why people think credit cards are bad. The cards aren't bad it's that people that abuse them or don't use them to their advantage that need educating.

ROTH IRA...best investment going. I'm amazed by the number of people that don't even know what it is. Use the ROTH and pay yourself first.

i started to do this but with my debit card for my daily purchasing (food gas etc)..I have 34000 points already in less than 10 months

given that the debit is on credit cards, i'd say pay em off

if the debt was deductible (i.e an investment loan) then i'd keep the debt, service the interest only, claim the deductions and use your savings to make other investments

You just reminded me of my nightmare. About 10 months into the marriage, I opened up the mail (my ex did the finances), and I saw a credit card. Honey, what is this cc for $1,200.00?

"Oh, just pay double the minimum."

"Don't we have tons of $$ in savings."

"Oh, yes. But I get nervous using that account."

"Well, let's not discuss this. Pay this off, I do not want to discuss it, just do it."

Nick, You're on the right track.

The only advice I can give is you might consider changing which bills to pay. It sounds like you are spreading your payment across 4 or 5 credit cards. You might consider paying the minimum on 4 cards and putting all the rest towards the remaining card (which should be the highest interest rate card).

I've been in the same boat more than once. I found it very motivating to get cards paid off. If I did like you are doing, it would seem to take forever. So, I did as I said above - except in some cases it's easier to pay a small balance and get that card done - then move on to the higher rate cards.

Even though the total balance may be dropping at the same rate - no matter what you do, I found it more motivationg to completely pay off a card and be able to say...I only have 3 left, etc...

I carried almost 10K in cc debt for too long. When I sold an old car for stupid money last year, I paid off the cc debt within five minutes of the check clearing. I will never carry a cc debt again if its the last thing I ever (don't) do. I put most charges on a United Visa card for the points, but am thinking that one over. I've had the card 20 years, and now there are some others that are more flexible in terms of where you can use the points. I've even though of charging not just gas, but groceries as well. I put $12K on it for flooring for the house, and paid it off when it came due. The flooring contractor, a local guy said he couldn't take the hit for the entire $25K on a cc.

Pay it off ASAP. I got in the habit, like many others, of buying for immediate gratification, and never quite paying it off. The structure of the cc financing is definitely stacked against you. If you carry a balance, you get charged from day one on interest for all new purchases until the next bill comes in.