It has taken a long time, but we have gotten rid of all our debtt except for one card we are paying down as aggressively as we can. Medical and educational costs have slowed us down considerably. We have about 10k on that card we are paying down. We also have our mortgage, but have never been late or missed a payment. We have only 1,000 in actual "cash" savings, accessible without a hassle or penalty.
We expect to get about $2,500 in a tax refund. Does it make make more sense to you (those who know and practice the Ramsey approach) to put it all in savings or to put it on the credit card? I feel like I should know the answer, but I need help with this. If it is in savings, we will have it to use if there is a sudden need, and we will have our month's expenses in case a check is late or something If we put it on the card payment, it will be paid down more quickly.
Please, no hostility or judgement about how we ended up with debt. Most of it is medical, and very painful to revisit.
Pay down the debt THEN add to the emergency find (with the same aggressiveness you're using to knock out that debt!) to build to 3/6 months of expenses.
Good luck!
DR works!!!
Trust in the baby steps!
Unless you have the need to put the snowball on hold for a specific reason (new baby coming, someone is sick, talk of layoffs next month, etc.), then Dave would say. . . "CHEETAH!!!!!!!"
You're in the home stretch - keep up the good work!!!!
I'm pretty sure the Dave Ramsey approach is to eliminate debt first. Then start accumulating wealth. Step 1 - $1000 emergency. Step 2 - eliminate debt. Step 3 - 3-6 months emergency savings. Step 4 - retirement. Step 5 - college funding. Step 6 - pay off mortgage. Step 7 - accumulate wealth.
So, if you want to follow Dave Ramsey - pay towards the credit card.
Mathematically, paying down the card makes more sense, which is why that's what Dave Ramsey recommends.
If you have approximately 20% interest on the card and only earning approximately 2% interest (if you're lucky) on savings, then if you put the money in savings, you're still losing money. Paying down the debt faster decreases the amount that gets added to the card each period (which at 20% is significant), thus resulting in more freedom with your money faster.
Pay the credit/debt off first.
Then once that is done - get at least six months of salary in savings.
The interest you are paying on the credit card is more than you are earning in savings. So pay the debt first.
Debt happens. Not sure why you would get judgement on it. We made the decision to go cash only in 2006. It was the best decision we made. We paid off our debt and had a decent savings. Thank God. My husband was unemployed for 10 months. It was tight, but we got through it.
You CAN and WILL get through this. You will learn from this and find ways NOT to get in this situation again. use this as a teaching/learning moment...the next time you pull the credit card out...do you NEED this or WANT this? Is it worth the interest I will pay on it if I can't pay it off when the bill comes in? that was the hard part for us when we gave up credit cards...NEED vs. WANT....for some it's clouded!! :)
YOU KEEP ROCKING IT GIRLFRIEND!!! CONGRATS on paying the debt down!! Keep it going!!!
Credit card
Okay because I hate logic errors, unless you are expecting the unexpected expense to happen the next day or week, it is illogical to save the money just because you may have to use the card again. A months worth of interest on 10,000 is around 150 to 250 dollars? What are you going to get as a return on savings?
Oh yes of course only saving the 2,500 but that is still 50 to 100!
I would suggest doing both...... put about $2000 of it into savings (that would boost your cushion to $3000), and put $500 into the credit card debt....
That way, you have the feel good of doing both.
I see someone also suggested this, but put $1500 into savings.
And... congrats on whittling down your debt! It isn't easy... I know that personally......
Pay the credit card.
You are paying interest on that debt that far exceeds whatever interest you could earn on the money by saving it. If you save it, you have it, IF something comes up and you need it, but the interest accruing is a guarantee. I would not even consider saving money for "maybe" when I am carrying a credit card balance, unless the interest rate I am paying is less then what the money would earn in a savings account. My guess is you are nowhere near that.
i do listen to Dave Ramsey and he addressed those questions somewhere in his six step plan. My thoughts (which probably aren't just like his) would be to use some of it to build a bigger emergency fund (about $1500 to bring your emergency fund to $2500) and put the other $1000 on the credit card. Is your credit card at a lower interest rate? Would it benefit you to switch the balance to a lower rate card so that more of your payment is going to principle? You might also see whether it would benefit you to have less withheld from paychecks and have more cash each month instead of a refund. (that may be difficult to estimate this year to all the tax changes) Good luck, it sounds like you really are making a lot of progress in your plan!
Wow, R., you are doing an amazing job! I hope you feeling pride in your accomplishment.
After reading all of the responses, most would agree that paying down the card is best, especially if you have a high interest rate. We have been able to transfer our debt to really low interest rates so that would make the difference to me. If you don't have a really low interest rate on your debt, look into that first! If you have a low rate, I would look at adding to your savings.
In the near future, is there the possibility of needing more than $1000? For example, Is your old washer acting up? Are your tires near bald? Do you have a grandparent who is out-of-state and near death? Is your roof leaking? Look around and add up your potential "budget busters."
Another thing to look at is to make sure you don't have $2500 next year as a refund. Don't have so much taken out of your checks. Do you really want to give the government all of that money interest free during the year? More money each paycheck can go toward your debt.
Keep up the good work! You have learned a lot and are still wanting to learn more! I'm sure you have inspired many people.
credit card...
i suggest re-listening to the dave ramsey cd's or re-reading his book.
you still seem to think you're the only one with embarrassing, painful debt.
if there's anything his class taught me is that there are a TON of people, much, much worse off. we all screw up. the entire country is in debt. don't let it eat you up.
and by the way -CONGRATS! you're doing it, and doing well. don't stop now. the tax return goes on the credit card. you know this.
Ramsey would tell you to put it ALL towards your debt - think debt snowball. Then once your debt is paid off, then you agressively build your emergency fund to cover at least 6 months of living expenses. Also, no debt or hostility here - only love! I absolutely LOVE to see people headed in the right direction! You're doing great, mama! :)
Dave Ramsey's advice would be to apply all of it towards your debt. My opinion is that $1000 is not an adequate emergency fund, even a baby emergency fund. Personally, I'd use $1500 to increase my emergency fund to $2500, and apply the rest to your debt.
The credit card is the highest interest you will pay. Use the money to pay the credit card debt, and if an unexpected expense comes up take out a bank loan rather than put it back on the credit card.
The plan usually calls for $1,000 emergency fund, then snowball debt until the debt is gone. But, I think that also kinda depends upon your individual financial situation. For us, $1,000 is not enough in an emergency fund to feel comfortable. We have paid for older cars that when something goes kaput, is more than $500... so we need a bigger cushion.
You may not. I don't know your particular situation well enough to say.
If it were me, I would probably split the funds. Add another $1,000 to your emergency fund, and pay the rest ($1,500) on the credit card debt.
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ETA: I also know that one of the steps is to accumulate not just an initial emergency fund, but at some point an emergency fund that is 3-6 months living expenses. I just can't remember where that is in the order.
You need to build up your emergency fund. You need at least 3-6 months of living expenses in your emergency fund. $1000 is not going to do it.
Of course you don't expect big bills in the near future, that's why it's called, an emergency fund!
Keep up the good work! But don't forget your financial foundation. Many, many times we have had cash in the bank to take care of unanticipated bills, or actually saved money because appliances don't have eternal life!
It's an important part of living to have an emergency fund. People who fail to plan, plan to fail.
First, congratulations on paying down your debt. You should be proud.
I vote for saving it. I agree with Dragonfly- if something comes up and you don't have enough savings, it'll go back on the card. Or put half into savings and half on the card.
You can always decide to send it to the credit card at a later date.
I would put half in bank and half towards credit card.
Not from the Dave Ramsey perspective. But if you use it all to pay your credit card.....what happens to the unexpected expense. It goes right back on the credit card.
I say save it just in case and keep paying on the credit card.
