Author Topic: Savings??  (Read 1778 times)

lilyjames

  • Stubble
  • *
  • Posts: 4
Savings??
« on: December 28, 2012, 12:02:24 PM »
I have about $1000.00 in savings. Do i keep that money there or use some of it to pay down debt. I have about $5000 in debt?

eyePod

  • Senior Mustachian
  • *****
  • Posts: 562
    • Flipping A Dollar
Re: Savings??
« Reply #1 on: December 28, 2012, 12:04:05 PM »
You're most likely getting a worse interest rate on your savings compared to the interest rate on your debt.  It's always nice to have an emergency fund.  Amount varies by person though.  If it was a windfall or something like that, I'd probably just throw it at the debt.
Started a blog on items flipped for a profit on eBay:
Flipping A Dollar

Goal for 2014 will be to make $5,500 in profit from my online re-selling side business/hobby.

Feel free to stop by!

Blackbomber

  • Bristles
  • **
  • Posts: 62
Re: Savings??
« Reply #2 on: December 28, 2012, 12:56:17 PM »
I've read your other thread, and my advice is to take that savings, and pay off credit cards 3 and 5. I'm choosing those only because they equal your current savings, and you will wipe out two small debts. The reason you don't need savings (besides eyePod's excellent point) is that you don't save while in high interest revolving debt, unless you have an inflation adjusted ROI greater than what you are paying on those cards. In which case, put that savings towards your highest interest rate card. You needn't worry about a safety net, because if the unforseen happens, and you need 1k in a hurry, you can just use your (now paid off) cards, and you will be no worse off than before, and probably saved some interest payments along the way. Well you will actually be better off than before, because now you have one billing cycle in which to come up with the money you need to wipe out that new debt. If you are worried about the rare thing that can't be paid by card, get a line of credit on your checking account. My bank gave me a free (meaning no fee) $1,500 line. This is sometimes known as overdraft protection, and that's exactly why I have it. So I can keep my bank account lean, and if I goof up, and have a payment go through that I can't back, I avoid a $35.00 fee. I'm disorganized like that.


MrChanticleer

  • Stubble
  • *
  • Posts: 44
  • Location: Orange County, CA
Re: Savings??
« Reply #3 on: December 28, 2012, 02:29:06 PM »
My bank gave me a free (meaning no fee) $1,500 line. This is sometimes known as overdraft protection, and that's exactly why I have it. So I can keep my bank account lean, and if I goof up, and have a payment go through that I can't back, I avoid a $35.00 fee. I'm disorganized like that.

How does that work? If you do goof up, how long do you have to pay back the overage?

fidgiegirl

  • Magnum
  • ****
  • Posts: 438
Re: Savings??
« Reply #4 on: December 28, 2012, 06:40:35 PM »
I'll also double-post:  I vote you hang on to the $1000 a la Dave Ramsey.  See other thread's response.  It will be a huge peace of mind to have it available.

mushroom

  • Handlebar
  • ***
  • Posts: 198
Re: Savings??
« Reply #5 on: December 28, 2012, 07:46:35 PM »
Rationally, as already mentioned above, it makes the most logical sense to apply to credit card debt.

Psychologically, fidgiegirl mentioned "peace of mind," but I could argue that having an emergency fund could also make you more likely to spend money on things that may not really be emergencies and less likely to pay off more debt (because a larger amount of debt may seem more overwhelming, starting to pay debt can lead to paying off more debt (Dave Ramsey's debt snowball if we're going to talk about him), and you're not in a put-every-cent-toward-the-debt-because-the-debt-is-an-emergency mode).

Part of it is how you frame it to yourself: Will a $1000 emergency fund make you more likely to feel in control of your situation (and thus more gung-ho about paying your debt) or will it make it easier to spend more/put less toward debt?

twinge

  • Magnum
  • ****
  • Posts: 326
Re: Savings??
« Reply #6 on: December 29, 2012, 06:40:57 AM »
I'm with those who say to pay off the credit cards with the savings. I guess I can't comprehend why $1000 in savings when you have cc debt accruing interest gives you more peace of mind than just having less debt and the option to go back up to less than your original amount of debt if you have to use that $1000 for said emergency. But obviously many people claim it "works" for them.

I  think it's much more empowering (and helpful to peace of mind) to commit firmly to being rational.  So if your debt is costing you more in interest than your savings are giving you, then use  your savings to eliminate debt.  I think there's a potential trap in using "psychological tricks" because at best these are crutches (e.g., savings despite debt helps me develop the habit to not add to my credit card balance anymore)  and at worst they are ways to delude yourself (e.g., the real reason you like your $1000 savings buffer is that it helps you feel less close to the financial edge than you actually are and thus more able to spend money you don't have on little things you "deserve").

fidgiegirl

  • Magnum
  • ****
  • Posts: 438
Re: Savings??
« Reply #7 on: December 29, 2012, 02:41:04 PM »
It's ok if people don't understand, but I stick by it.  For me it was HUGE psychologically not to ADD to my debt when I was paying it off.  When I have setbacks, sometimes they are show-stoppers.  Not rational, but humans aren't rational sometimes.  And so the $1000 EF worked for me.  Of course, lilyjames' mileage may vary.

travelbug

  • Handlebar
  • ***
  • Posts: 226
Re: Savings??
« Reply #8 on: December 29, 2012, 07:15:35 PM »
I would pay down debt. The interest on $1000 per month accumulating would give me the horrors enough to wipe the two smaller cards.
Good luck