Save or Pay Off Credit Cards?

[loced4life]

Greetings,

This is my first post, so I will introduce myself:

My name is loced4life and I am a unmarried homeowner. I filed a Chp 7 BK in June of 2003 and my mostly CC debt was discharged.

However, I feel myself slowly slipping back to the same situation, so I am trying to make adjustments. I closed some very unnecessary credit cards (trust me, I had way too many) so now I have three - a mastercard, a visa and a store credit card. I just paid off the mastercard and I am going to start working on the Visa. The store credit card has 0% interest until the end of next year, so I will pay that off. I also have all the usual debt: mortgage, car note; in addition to student loans and a personal loan.

I just passed the CPA exam, and therefore, at my job, I automatically get a 10% increase in pay.

My question is: should I use that pay increase to pay off the credit cards or place it in savings, or both? I don't have much in the way of savings now (ok, I really don't have any), but it's always suggested that you pay off debt before you start saving.

Any advice will be greatly appreciated! Thanks.

[emoney]

To answer your question I can only tell you what I would do. First is save up an emergency fund of about $1000. Then start paying off credit accouts from the bottom up. As they are paid off put the additional money on the next bill in line.
While doing this set up and use a written budget. It forces you to tell your money how to behave. After all it is your money.
Also put studen loan in deferal status.
There is more information on this plan on the Dave Ramsey radio show. His web site will tell you where to find a station.
GOOD LUCK, but not really as we make our own luck.
Regards,
emoney

[no_it_all]

Ok, you are a Certified Public Accountant and you want to know if you should pay off debt (and get an instant 9 percent or so return on your money, depending on the APR) or put it in a savings and grab a whopping 3 percent or so?? I'm not a CPA, but my <guess> would be to plow every single spare dime into paying off your credit cards, then continue to plow the same money (or more) into a nice mutual fund. Of course the higher the interest rate on the card, the more money I would plow into it.

[AMISLANDER]

Pay off the card immediately...then put away $....

[SinkingFast]

I think you should save up a "Rainy Day Fund" first. As emoney suggested.

Right now, if something happens, the car breaks down, the washing machine needs repaired, how would you pay??!! Would you pull out a CC or would you pay cash. If CC was your answer, you need a "Rainy Day Fund".

Create a budget and live within it. The #1 Expense at the top of the list should be you. Save some portion of every net paycheck. Ideally, you'd want to save 10% of your Net for you. But if you can't start there, save something. If you spend less on groceries and food one month, put the extra into your savings.

Carry a pocket memo pad. Write down every penny you spend, where, and what you bought. Use that memo pad to look for spending leaks. Maybe you meet the gang from work a few mornings every week for breakfast. That roll and coffee "only" costs $5/day. But $5/day, 3 times/wk, 52 weeks a year is $780. That's $780 you could have paid on your CC balances or saved into your Rainy Day Fund.

NIA makes a good point about the interest. Work harder on the higher interest rate balances. The 0% interest balance isn't costing you extra money. But the 10% balance is. When you pay off one card, apply those $$'s the next month to another payment.

Just some thoughts.

[HHM]

How much Credit Card debt are we talking about...also, if you have some really low interest rate credit cards...then you can save and pay down debt at the same time. Because your rate of return on savings will be greater than the cost of debt...if that is not the case, then pay down the debt.

Basically, the route to pay down debt is this...(1) stop using the credit cards, then start by taking all you spare income and devote as much of it as you can to your highest interest rate unsecured credit card, and make minimum payments on the rest. After that card is paid off...take the money you were paying to that card, and devote all of it to the card with the next highest rate of interest while making minimum payments on everything else, so on and so forth.

I also agree, if you have NO savings right now, create an emergency fund as has already been suggested.

An example, lets say you have 3 credit cards, (a) 4,000 at 14%, (b) $2,000 at 12% and (c) $1500 at 0%, and that after you pay off all your bills, expenses and secured debt payments, you have $400 per month left over.

The minmum payments on Cards (b) and (c) would be
Card (b), $50 per month
Card (c), $37 per month

Thus, with $400 per month in excess, you would pay $313 per month to card (a). It would take you 14 months to pay off card (a).
At the end of the 14 months, the balance on card (b) would be would be $1,551.58 (give or take) and on card (c) would be $982.
Now, you take that $313 you were paying to card (a) and devote ALL of it to paying card (b), along with the $50 you were already paying, for a total payment of $363 per month.

Thus, card (b) would be paid off in an additional 5 months. The new balance on Card (c) would be $797. At this point, I would do a 3 way split of the $363 you now have available after paying off card (b), 1/3 to savings, 1/3 to card (c), and 1/3 to "overpay" your car payment and pay down principal.

[loced4life]

Thanks to everyone that responded (I didn't expect to get a large response). In my research, I have found conflicting opinions - some say save first while some say pay off the CCs first.

For anyone who asked, My CC debt on the Visa is about $1,800 @ 9.9% and the store card is about $1,200 @ 0% ($700 @ 0% until July 2007; and the other $500 @ 0% until January 2008).

[loced4life]

Ok, you are a Certified Public Accountant and you want to know if you should pay off debt (and get an instant 9 percent or so return on your money, depending on the APR) or put it in a savings and grab a whopping 3 percent or so?? I'm not a CPA, but my <guess> would be to plow every single spare dime into paying off your credit cards, then continue to plow the same money (or more) into a nice mutual fund. Of course the higher the interest rate on the card, the more money I would plow into it.

Please don't insult me. I'm just trying to weigh my options.

[HHM]

Thanks to everyone that responded (I didn't expect to get a large response). In my research, I have found conflicting opinions - some say save first while some say pay off the CCs first.

For anyone who asked, My CC debt on the Visa is about $1,800 @ 9.9% and the store card is about $1,200 @ 0% ($700 @ 0% until July 2007; and the other $500 @ 0% until January 2008).

Pay down the $1,800 @ 9.9% as fast as possible, and make minimum payments on the rest. There really is no investment vehicle that earn 9.9% (at least not one that you would likely have access to, or doesn't take a lot of work), so you can't really earn more by saving, than what you lose in interest. I don't know how much disposable income you have, but I can't see paying off these cards taking more than a year.

Make a plan like I suggested above...and pay it off.

I don't think that person was trying to insult you, but, the fact that your CPA makes this post a little ironic

[loced4life]

Pay down the $1,800 @ 9.9% as fast as possible, and make minimum payments on the rest. There really is no investment vehicle that earn 9.9% (at least not one that you would likely have access to, or doesn't take a lot of work), so you can't really earn more by saving, than what you lose in interest. I don't know how much disposable income you have, but I can't see paying off these cards taking more than a year.

Make a plan like I suggested above...and pay it off.

I don't think that person was trying to insult you, but, the fact that your CPA makes this post a little ironic

I know..I know. I am an accountant - not a financial advisor. I "account" for the money - I don't necessarily make the money.

Thanks for the advice.

[CindyLou]

Hey, I'm a nurse but when it comes to questions about my health I always ask my mom for advice!!! Of course she reminds me that I'm a nurse. So just because we are an expert in one field and can give others help and advice it does not always ring through when we are looking at ourselves!!

[Spartan]

Not to give the poster trouble. But they teach you those stuffs in accounting courses. I have taken a couple courses. Even in those basic courses, they teach you about the costs of capital. Present value. Future value. Annuities. They are all covered.

I am sure if the poster just thinks for a moment, he would remember where he keeps his notebooks... I don't remember much of the details. But I remember where to look them up. lol

[loced4life]

Not to give the poster trouble. But they teach you those stuffs in accounting courses. I have taken a couple courses. Even in those basic courses, they teach you about the costs of capital. Present value. Future value. Annuities. They are all covered.

I am sure if the poster just thinks for a moment, he would remember where he keeps his notebooks... I don't remember much of the details. But I remember where to look them up. lol

Sure I remember those courses (I took them well over a decade ago however.)

But in real world situations, there's more to it than numbers on a piece of paper. When we speak about our own personal finances, sometimes it isn't just black and white.

For example, I have heard from financial experts to pay off the lowest credit card balance first, because it will give you a sense of accomplishment in the shortest amount of time. Now, what does that have to do with numbers on a sheet paper - nothing! But it does deal with human feelings - ie paying off one credit card will give you motivation to pay off the next one.

I posted to ask for advice - I received different opinions. I thank all who responded - even if you jabbed at me because of my profession (it's my fault - I gave too much information on a public internet forum. I know better).

[loced4life]

Hey, I'm a nurse but when it comes to questions about my health I always ask my mom for advice!!! Of course she reminds me that I'm a nurse. So just because we are an expert in one field and can give others help and advice it does not always ring through when we are looking at ourselves!!

FINALLY someone who understands!

[lrprn]

I posted to ask for advice - I received different opinions. I thank all who responded - even if you jabbed at me because of my profession (it's my fault - I gave too much information on a public internet forum. I know better).

Sorry to see that you got a few unnecessary jabs in this thread, loced. That doesn't happen very often in these forums and please continue to come back whenever you need answers to questions or support during tough times. That's why we're here.