Author Topic: Do I take the cash i've saved - and blow it on paying off my cc debt?  (Read 12627 times)

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Hi friends,

It's been a while, and I'm slightly better off than I was before. But now I feel like I'm ready to begin becoming a mustachian.

First things first - I have saved around $3000 in cash, and growing. But I also have around $4000 in credit card debt.

I really hate to see my savings go - but... should I just dump all this money I've saved into paying off my credit cards right now? I guess if the interest rates are higher than what I would make if I put it into any kind of investment account, then it would cost me more in the long run to not pay off the debt.

But it's such a painful thing to do, to take all the money i've actually saved, and just give it away like that. I need advice from you guys. I wish I knew what to do.


Self-employed-swami

  • Handlebar Stache
  • *****
  • Posts: 1094
  • Location: Canada
Unless you have the credit card debt at a lower interest rate than the savings account, I'd use that $$$ to pay it off immediately.

JamesAt15

  • Stubble
  • **
  • Posts: 200
  • Location: Tokyo, Japan
What's the interest rate on the credit card(s)?

Generally you will probably want to keep an emergency fund of easily accessible cash or equivalent. Most folks seem to suggest an emergency fund of around 3 months' worth of expenses.

If you have that, then it's usually time to pay off your outstanding debts after that, including your credit cards. MMM treats outstanding debt like a hair on fire emergency - take care of it first before you start looking at other things to do with the money.

And you're not "giving that money away" - you're paying back the money those guys loaned you, and are going to continue charging you extra money for, for all eternity. Wouldn't you rather get that sorted and out of the way first?

Khan

  • Pencil Stache
  • ****
  • Posts: 616
So I think of it like this, in the event of almost any emergency, you still have 3k available to you... in your credit card. Not only that, but say, bad things happen and you lose your job or something, you'd still be liable for that CC debt anyways.

Leave whatever float you want in your bank account(an extra rent payment or however much you want), and then yeah, knock the debt down. We can revisit an emergency fund later(or operate with little/no emergency fund or an invested emergency fund)

JamesAt15

  • Stubble
  • **
  • Posts: 200
  • Location: Tokyo, Japan
Unless you have the credit card debt at a lower interest rate than the savings account, I'd use that $$$ to pay it off immediately.

Would that be, like, zero percent? ^^

If you've got your debt on a CC with a zero percent (or some ridiculously low number) for a fixed period (a year or whatever), then I could see saving up your cash in an interest-bearing savings account or something like that, earning a little extra money while the CC company was loaning you money cheaply. With the intent that when that deal ends and the rate jumps to the normal value, boom, you pay it off immediately from your savings.

Even then, I'd probably rather just pay it off immediately instead of having the debt hanging over me.

extole

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Start knocking down the credit card debt immediately! Don't view it as throwing money away, view it as eliminating a substantial downward drag on your overall net-worth going forward.

cerberusss

  • Stubble
  • **
  • Posts: 170
  • Age: 42
  • Location: Netherlands
But it's such a painful thing to do, to take all the money i've actually saved

It's not a binary thing, just pay off $500. You'll see it's not really painful but instead it feels awesome. I'm still on a high from last week because I knocked off a thousand from my mortgage.

Adventine

  • Handlebar Stache
  • *****
  • Posts: 1262
  • Age: 30
  • Location: Manila, Philippines
But it's such a painful thing to do, to take all the money i've actually saved, and just give it away like that. I need advice from you guys. I wish I knew what to do.

The longer you put it off, the more you'll have to give away.

nktokyo

  • Bristles
  • ***
  • Posts: 370
Pay it off then cut up your card because if $3,000 is a large enough amount to cause you anguish then you have no business being able to go $4,000 into credit card debt.

ep114

  • Guest
YES!   and you will feel great when you get rid of that debt.

olivia

  • Pencil Stache
  • ****
  • Posts: 770
  • From Consumerism to Minimalism
Definitely pay it down-you'll be happy you did!

rugorak

  • Bristles
  • ***
  • Posts: 382
Agreed with previous posters that this is not a binary decision. I would use some of it to pay off the debt. Keep maybe 1k in cash. This is more for the mental aspect so that if you do have some unexpected cost you can use the cash instead of the credit card. Financially it would make more sense to just pay it all down. But not everything about personal finance is about the numbers. There is the emotional aspect of it. In that case I think Dave Ramsey has a good outlook on things. You have to conquer the emotional part before you can really worry about the numbers part and have a hope of succeeding.

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 8
  • Location: Chicagoland
All right, you are developing a respect and appreciation for your cash stash! 

Maybe this will help:  Think back and remember when you started to save and what got your savings started.  Were you worried, embarrassed then, or afraid.  Do you want to go back to that time?  Think of your time (that you will not get back) that you have worked (the hours, days, weeks) and scrimped and gone without stuff or activities to build up your $3000 worth of cash and the flush pride you now have that you did it.  Or, have you learned that you don't feel deprived but energized that you cut expenses and saved and you're wondering what other things in your life you could do differently? 

Take a look at your yearly interest and fees from the credit card.  Say it's $600 or more.  Do you want the cc to get that every year from now on?  Do you love and need the stuff you bought so much that you would do it all over again even with the ongoing interest expense? 

When you spend, you are breaking off a chunk of your past productive time and your budding frugal living.  It's gone but hopefully you get real value in return.  What value is the cc interest to you right now?

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Ok - I'm starting to be a lot more comfortable with this after listening to all of your replies. Let's get down to specifics.

I have $2,032.91 due at 6.24% an account that is closed. They ask me for $31.69 a month as a minimum payment.

If I pay it off, I will never be able to use that money.

I have $1,797.28 due at on at 21.24% (I should call and see if I can get that lowered?). My minimum payment here is around $51.

I like that if I pay this one off - I'll be able to use that card still to make purchases, that sometimes give me warranties and certain credit card benefits.

Lastly, I have a $754 dollar balance, interest free for 6 months (bought a used car with cash, and the tires needed replacing and other small fixes). My payment there is $754/6 or around $126.

And, I'm about to have a root canal that will ring in at $1200. For which I have been approved for interest free credit for up to 12 months. So I'll probably pay $100 a month for that.

On top of that I have almost $100,000 in student loans with very low interest rates, around 2-6%, I make minimum payments each month on those, around $108, $250 and $0 (until next year) for the respective 3 loans that make up the enormous balance.

Otherwise, my income is around $2500 per month as 1099 (independent contractor), and $1100 per month as a W2 (employee), and I will have no home costs until october 2012.

So with all this, I've never really had a stash of cash. And suddenly - for the first time, I'm in the positive, cash wise, and it feels good. And I guess what I'm supposed to do now is get rid of it all... *pout pout*

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
If it helps put this decision into perspective: you don't have $3,000 in savings.
Imagine starting with $1,000 of credit debt. You then took a cash advance of $3,000, putting yourself into $4,000 of credit card debt - with $3,000 sitting in a bank account. Effectively, that is exact where you're at.

That's an interesting way to think of it.

Will

  • Pencil Stache
  • ****
  • Posts: 778
  • Location: Vancouver, WA
  • What the deuce?!?!?

Will

  • Pencil Stache
  • ****
  • Posts: 778
  • Location: Vancouver, WA
  • What the deuce?!?!?
I would also recommend checking out http://www.whatsthecost.com/snowball.aspx

Put your amounts in there and see what it is costing you.  It'll open your eyes and make you want to pay down those debts.  It'll even tell you what order to pay them in.

Joel

  • Pencil Stache
  • ****
  • Posts: 775
  • Location: California
I would pay the 20% card off immediately. After that, make sure you won't be strapping yourself for cash before paying any more.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5082
You are not now and likely never have been in a positive cash position.  You have a huge negative net worth.  In your shoes, I would throw everything I had at the debt. except for a small emergency fund, maybe $1,500 in your case.  Pay off that 21.24 percent card today.  Then you will have that credit available in addition to your e-fund.  As you get more cash in, pay off the closed credit card.  Finally, out with the zero percent loans.

Once that is done, you need to look at the student loans.  Other folks here will have better advice on how to prioritize them.

Finally, there's retirement savings and savings for other goals.  Once the debt is a bit more manageable, look into IRA's and if you have one at the W-2 job, the 401k.  Even small contributions help here.  They won't get you to positive net worth any faster, but it will seem like you are making more progress.  As you just discovered, having money is empowering.

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
Ok - I'm starting to be a lot more comfortable with this after listening to all of your replies. Let's get down to specifics.

I have $2,032.91 due at 6.24% an account that is closed. They ask me for $31.69 a month as a minimum payment.

If I pay it off, I will never be able to use that money.

I have $1,797.28 due at on at 21.24% (I should call and see if I can get that lowered?). My minimum payment here is around $51.

I like that if I pay this one off - I'll be able to use that card still to make purchases, that sometimes give me warranties and certain credit card benefits.

Lastly, I have a $754 dollar balance, interest free for 6 months (bought a used car with cash, and the tires needed replacing and other small fixes). My payment there is $754/6 or around $126.

And, I'm about to have a root canal that will ring in at $1200. For which I have been approved for interest free credit for up to 12 months. So I'll probably pay $100 a month for that.

On top of that I have almost $100,000 in student loans with very low interest rates, around 2-6%, I make minimum payments each month on those, around $108, $250 and $0 (until next year) for the respective 3 loans that make up the enormous balance.

Otherwise, my income is around $2500 per month as 1099 (independent contractor), and $1100 per month as a W2 (employee), and I will have no home costs until october 2012.

So with all this, I've never really had a stash of cash. And suddenly - for the first time, I'm in the positive, cash wise, and it feels good. And I guess what I'm supposed to do now is get rid of it all... *pout pout*


Get ready for a facepunch!

















FAIL FAIL FAIL FAIL FAIL FAIL!!!!!


Stop thinking like you're thinking!!! It's the WRONG WAY, and it is exactly what got you into debt in the first place!!

You need to read some books on personal finance, "The millionaire next door", "Your money or your life", etc.... You have absolutely the mindset that has been engrained into all of us by media & society in general.

Anyone that will accumulate wealth does not ask 'how much per month', they ask 'how much'.  Then you save up and pay for it.

If you know you have a $1200 bill coming for a root canal, and you have $3000 in savings, why would you pay $100/month and prolong the expense?  JUST PAY THE BILL!!!!

STOP BORROWING MONEY, especially if you haven't finished paying back the money you borrowed last time!!



Your credit cards are comprised of money you've spent but haven't paid back.  I don't care if the account is closed, the money you give them will not 'be gone', it will go to finally paying off the damn thing you spent the money on in the first place!  WITH INTEREST!


Again, I re-iterate, stop borrowing money.  You don't have the correct financial mindset yet, read some finance books, because anyone with $4000 of CC debt that is contemplating paying $100/month for a $1200 dental visit, when they have $3k cash, is doing it wrong!!!

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
Phew, after getting that off my chest, you definitely need to keep the $1200 you'll need for the dentist, so you only have $1800 cash, and I'd use that to completely pay off the 21.24% Credit Card.


sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
lol Gostumpy. Point taken. I appreciate the 'you need to read' - but obviously, if what I read stuck as easily as it was to read it, I wouldn't be in this situation.

The reality is that when faced with having a cash pile for the first time in my life, I celebrate that as a small victory in my own mind, and when faced with 100,000+ of debt, I find that reading often generalizes concepts, that aren't specifically targeted to me, and I am just not built with a financially literate brain.

I am a man of many talents, and although good at many other things, astute number sense has never been one of them. I think of numbers as words, and comparing which word is greater than another word, or how many of this word will get me into that word, or whatever, doesn't compute. Like saying motorcycle plus tree equals yellow house. Some people have the neurology where they understand quantities innately, yet I have yet to accomplish that for more than a moment at a time.

I think this is why we cooperate as humans, you are great at some things that I suck at! and maybe one day I can be good at something you need help with.

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
I think for me - it's all about "wrapping" my brain around it the way that you guys can. You think so far in the future, in the past, in the moment, you see consequences far ahead, make calculations, substitutions...

I see big money pile. me like.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5082
It sounds like part of the problem is that all of this stuff is floating around in your mind, and whatever needs immediate attention floats to the top.  It might help to get it all in one place in a format that gives you the entire picture.  Have you tried Mint or something similar to track spending?  Have you put your net worth (assets vs liabilities) down on paper?

Do you have any goals, especially long term goals?  Have you tried writing them down and figuring out how much they will cost and how to get there?

You could be a candidate for a Dave Ramsey type plan.  It's structured and methodical.  You track the income and outgo every month on paper.  Every dollar has a "job."  Check your library for his books.

In the end, you have to convince yourself your current approach to money is not working.  Once you do that, then you will be more motivated to change.

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 8
  • Location: Chicagoland
You are starting to peel your debt and finances onion and it is not that much fun.  Hang in there and learn what you can from the MMM community.

Regarding the credit card debt we see and feel:

“AAAAAUUUUUUGGGHHHH!!!! THERE IS A CLOUD OF KILLER BEES COVERING EVERY SQUARE INCH OF MY BODY AND STINGING ME CONSTANTLY!!!! I NEED TO STOP IT BEFORE I AM KILLED!!!”

You see your hard earned cash and you likey very much.  We do too.  A lot.

Build more and bigger piles of cash then until you are satisfied, but remember that you are currently strolling around in a field of debt land mines right now. 

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
lol Gostumpy. Point taken. I appreciate the 'you need to read' - but obviously, if what I read stuck as easily as it was to read it, I wouldn't be in this situation.


I completely understand, trust me, I've only become remotely aware of my financial situation since October 2012, so not long.  I was in 5 digit CC debt multiple times, got consolidation loans & racked them back up... I know how it happens, and I am not judging in any way.

But, like I did, you are turning a corner.  You are (hopefully) realizing that what you've done so far has got you to exactly where you are, if you want to be somewhere better, you'll have to make changes :)

Once that turning point is reached, reading personal finance books takes on an entire new meaning.  You start accepting, learning, and digesting the thoughts & methods in the books, not just skimming over them.

If I read a personal finance book this time last year, it would have done nothing.  Now I am truly taking in the knowledge in the books.   

I again highly recommend you read a couple good personal finance books, I've read "Secrets of the Millionare Mind" which was AWESOME, "Millionire next door", and I'm just about to read "Debt Free Forever" by Gail Vaz-Oxlade. 

I also listen to financial podcasts:  Stacking Benjamins, MoneyplanSOS, etc...

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Why may I ask, is it better to pay all cash up-front if I have an interest free loan for 6-12 months?

plainjane

  • Handlebar Stache
  • *****
  • Posts: 1675
Quote
Why may I ask, is it better to pay all cash up-front if I have an interest free loan for 6-12 months?

You can probably negotiate a better deal with cash up front.

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 8
  • Location: Chicagoland
Why may I ask, is it better to pay all cash up-front if I have an interest free loan for 6-12 months?

Possibly because you have a habit of going into consumer debt - a bad habit that you'll need to break in order to become financially independent. 
SIS

Breaking JUST CHARGE IT habits are definitely hard to break.  It allows you temporarily to operate in a world that you cannot afford by renting other people's cash stash (interest expense).  Your rent is just too damn high!

Talk with your dentist about the root canal.  My dentist gives me a 5% rebate for cash.

Also, if there is a dental school near you, they may be able to do the procedure at less cost.  It would be a dentist in training, but closely supervised.  Our son did this when he was short on cash but in need.  He had a good result.

For awhile, I was wondering if you were playing with us, but now I think- sachio, you've got a bad case of the debt/credit card mental fog.  I wish you the best.
« Last Edit: May 27, 2013, 02:31:19 PM by aj_yooper »

Adventine

  • Handlebar Stache
  • *****
  • Posts: 1262
  • Age: 30
  • Location: Manila, Philippines
Omg, GoStumpy. Hahaha.

Thirded on the paying your dentist in cash. I got a hefty discount on my wisdom teeth surgery that way.

Joel

  • Pencil Stache
  • ****
  • Posts: 775
  • Location: California
I think for me - it's all about "wrapping" my brain around it the way that you guys can. You think so far in the future, in the past, in the moment, you see consequences far ahead, make calculations, substitutions...

I see big money pile. me like.

Have you ever considered using YNAB for your budget? I think it would certainly help you.

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
YNAB definitely helps with the "Money come in, money go out, where it go?" confusion... gives complete clarity which is good in these situations!

See my signature for a link to YNAB, 34 day free trial as well.

nktokyo

  • Bristles
  • ***
  • Posts: 370
You are $100K+ in the hole with debt so $4K is not a big money pile it is a cupful of sand.

Pay it off man then cut up the credit cards, stop spending money and get started on your student loans.

Will

  • Pencil Stache
  • ****
  • Posts: 778
  • Location: Vancouver, WA
  • What the deuce?!?!?
You are $100K+ in the hole with debt so $4K is not a big money pile it is a cupful of sand.

Pay it off man then cut up the credit cards, stop spending money and get started on your student loans.

He doesn't even have $4k, he only has $3k.

nktokyo

  • Bristles
  • ***
  • Posts: 370
You are $100K+ in the hole with debt so $4K is not a big money pile it is a cupful of sand.

Pay it off man then cut up the credit cards, stop spending money and get started on your student loans.

He doesn't even have $4k, he only has $3k.

3/4 of a cup then.

rugorak

  • Bristles
  • ***
  • Posts: 382
The reality is that when faced with having a cash pile for the first time in my life, I celebrate that as a small victory in my own mind, and when faced with 100,000+ of debt, I find that reading often generalizes concepts, that aren't specifically targeted to me, and I am just not built with a financially literate brain.

There is no such thing. You learn the skills or you do not. How you learn them and how you apply them will vary based on "how you are built" but no one is born with a "finance gene" or the like.

So face up to reality! You are not "giving away" your $3000. You are giving it back! And the longer you wait the more you will be "giving away" as the price of them loaning it to you in the first place! I highly suggest figuring out your net worth using mint.com, YNAB, or even a spreadsheet or piece of paper. I think once you see the exact numbers of your negative worth the emergency aspect of this may set in.

sachio

  • 5 O'Clock Shadow
  • *
  • Posts: 21
ouch, I seem to be digging myself in deep. Ok - So I hear everyone yelling at me, but I still sit here blinking. What is the after that I am waiting for? What do I do when I find my consumer debt is nil, and I'm stuck with 100,000k. Is the idea that I basically pay everything I can to the student loan debts, so that they are gone in 5 or 6 years, and then AFTER those 5 or 6 years of living spartanly, I begin to invest?

So the idea is I am a few years away from ever investing? I was told before to make minimum payments on my loans because they are less than 7% and after 20 years and inflation, i'd end up paying less anyway than if I payed them all off now.

I need perspective. I blow my cash pile - I did it for the mustache. Now what, now that I have no savings (or lets assume I kept $3000 as my savings pillow)...? What besides peace of mind is my primary gain and then what is my action plan? This I think is where the words come in, but I don't get it. I've got like some dense layer of asbestos just preventing me from seeing the light

Zaga

  • Handlebar Stache
  • *****
  • Posts: 2180
  • Age: 39
  • Location: North of Pittsburgh, PA
    • A Wall of Hats
So I get the feeling that you're more of a visual person than a number person.  Unfortunately most of us are numbers people, but I'll try and put this a different way.

The first way to get yourself out of a hole is to stop digging!  Don't borrow more money, even at 0%, it just makes the hole deeper.  You do seem to have a good handle on what your debts are, that's a good start

The next step in my opinion is to acknowledge that you've already spent this money.  Your phrasing leads me to think that you subconscoiusly view available credit as "your" money.  It isn't.  You've spent money that you haven't earned yet.  Lots of it!  Available credit isn't a "positive", it's a potential "negative" in your net worth.

Third, I do agree with your feeling that you should hold on to some money as an emergency fund.  Now that you've saved up this money it really *means* something to you.  You are emotionally invested in this money that you've saved, much moreso than the huge amount that you've borrowed.  Use that emotion to feel the positive of paying off debt and paying cash for things going forward.

Finally, I don't think anyone here will tell you not to invest at all while in debt, but do at least get your credit cards paid off and build up the habit of saving up for things in cash like your root canal before investing.

ScubaAZ

  • 5 O'Clock Shadow
  • *
  • Posts: 62
  • Location: Phoenix, AZ
  • New Mustachian looking for FI by 40
ouch, I seem to be digging myself in deep. Ok - So I hear everyone yelling at me, but I still sit here blinking. What is the after that I am waiting for? What do I do when I find my consumer debt is nil, and I'm stuck with 100,000k. Is the idea that I basically pay everything I can to the student loan debts, so that they are gone in 5 or 6 years, and then AFTER those 5 or 6 years of living spartanly, I begin to invest?

So the idea is I am a few years away from ever investing? I was told before to make minimum payments on my loans because they are less than 7% and after 20 years and inflation, i'd end up paying less anyway than if I payed them all off now.

I need perspective. I blow my cash pile - I did it for the mustache. Now what, now that I have no savings (or lets assume I kept $3000 as my savings pillow)...? What besides peace of mind is my primary gain and then what is my action plan? This I think is where the words come in, but I don't get it. I've got like some dense layer of asbestos just preventing me from seeing the light

I'm not sure I follow the idea that minimums on student loans at 7% for 20 years will be less than paying them off as quickly as humanly possible.  I assume the theory is that in 20 years, inflation will have made the 7% almost irrelevant?  But you're paying 7% for 20 years to get to that point.  For example, when I calculate paying off my own $100k in student loans within 4 years, it saves me $82k over paying over 30 years (amazing you can finance professional school over 30 years like a mortgage, no?).  So I essentially would pay almost double for my degree if I pay the minimum for the term of the loan.  I suppose the gamble is that you could make more than 7% returns in the stock market, and be better off than if you pay down those loans.  I may be irrational in that I hate them and I want them gone.

If I were you, I'd use part of the savings to pay off the 21% credit card (21%!?!?) and then maybe split my extra income between building the savings back up to a comfortable level (I like the peace of mind of having some cash in the bank- for me its $5k, which is really low and I'd rather have $10k but I'm trying to balance realistic savings with paying down debt), and paying off the rest of the credit cards.  From there, maybe invest half, and put half toward you student loans.  As your income increases, don't realize those increases in your budget, but add that to your extra payments/investments.

And I agree, you have to stop thinking of credit cards as "your money."  Its not your money.  Its money you borrowed and have to pay back.  Its hard, but try to change your mindset and absolutely set a rule in your head--no more anything on the credit card.  Don't carry them with you.  Freeze them in a block of ice in the fridge.  (Don't destroy or cancel them-- you may want access to the credit line some day, and it will help your credit score to keep them open.)  But don't think of them as options for monthly expenses or fun stuff.  Emergencies only.
« Last Edit: May 28, 2013, 05:46:36 PM by ScubaAZ »

farmstache

  • Stubble
  • **
  • Posts: 188
  • Age: 34
  • Location: Brazil
Sachio,

First of all, let me congratulate you. It's really great that you're learning to save money! That's at least a 90 degree turn from what you had before. Now you only have to turn a few degrees further!

Second, I'm not a very good mustachian (yet), but I might help all our friends here with putting things in perspective.

The debt you have with 21% interest rate you really must kill. Asap. Really, no choice there. You know that already, so let's move on. You'll still have $1200 on your 'Stash! Plus, you'll be paying around $350 instead of $400 every month on interest alone.

Well, I'd love to know how much of your earnings you're able to save. Still, what I would recommend:

First, try to get a discount and pay your canal cash: you might still end up with $200 to $400 on your account for small emergencies.

Then, set yourself a goal: how much you're going to save every month?
Use half of it to pay your debts (credit-card at 6+% first, so you can get your interest spending down), and half you save to invest. As ScubAZ said, at first rebuild your emergency stash, then invest the money. Easy, no?

Oh, and do a test: for 6 months, don't make any leased purchase (not even zero interest ones). None. That's my challenge to you.

After 6 months, I'll let you buy things on lease at zero%, but only if:
1. You tried negotiating and the seller won't cut the cost more if you pay upfront
2. You have in cash all the money to buy it
3. Then you take that cash and invest for the duration of the lease
But that's after 6 months. Until then, we won't believe you're cured of your impulse-debts! :)

BlackRat

  • 5 O'Clock Shadow
  • *
  • Posts: 25
Unless you get a discount at the dentist for paying in cash upfront you're financially better off paying it interest free over 12 months (instead of paying the dentist you put the money towards debt and save yourself what you would otherwise pay in interest over the year), the benefit of paying it upfront without a discount is purely psychological (and its up to you if you think its worth the cost).
Nice work on the mini-stasche; if it were me I'd keep a few hundred dollars in the bank account, pay the 21% credit card ASAP and pay the others off as I went.
Good luck

Rebecca Stapler

  • Pencil Stache
  • ****
  • Posts: 907
    • Stapler Confessions
I need perspective. I blow my cash pile - I did it for the mustache. Now what, now that I have no savings (or lets assume I kept $3000 as my savings pillow)...? What besides peace of mind is my primary gain and then what is my action plan? This I think is where the words come in, but I don't get it. I've got like some dense layer of asbestos just preventing me from seeing the light

I am also digging myself out of a pile of student loan debt, literally twice a big as yours. It costs us almost as much as our monthly rent bill just to pay the minimums. What percentage of your income goes to paying those minimums? When it is tax time, it only takes 1 or 2 loans to get to the $2k maximum deduction for "interest paid in 1 year," and it makes me feel like vomiting. It feels like such a waste of money to pay interest. What do I get for that interest? The convenience of borrowing money I don't have. And what could I have done with the $5k/year I pay in SL interest? A LOT. If I wanted to spend it, I could have an amazing Hawaiian vacation with my family. If I wanted to save it, I could make $500+/year on it in this market just with an index fund.

But mostly, as long as I have debt hanging over my head, I'm chained to it. I need to have a job that pays enough to pay that debt down. I need to have an emergency fund that can pay the minimums for 6 months just to feel like I have a safety net.

You don't have a lot of expenses now, but you may in the future. Someday, you may need to pay housing costs. You may want to get married and invite your friends to a wedding (or your fiancé might want that). You may want to have a child and need to pay for daycare. At this point in your life, while you have low overhead expenses, it is the best time to get rid of your chains so you can make career and life decisions without having to consider your minimum monthly payments.

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 35
  • Location: Vancouver, Canada
I need perspective. I blow my cash pile - I did it for the mustache.

Paying off debt is not *blowing your cash pile*. It's returning the money you borrowed. Rather, it's returning the money *you are currently renting*.

Right now, you're renting $4k from your credit card company and paying them for the privilege. If you were currently renting a leafblower from the tool shop down the street, would you hang on to it forever because you didn't want to "blow it"? (bad pun, sorry)

That's what you're doing.

Quote
Now what, now that I have no savings (or lets assume I kept $3000 as my savings pillow)...? What besides peace of mind is my primary gain and then what is my action plan? This I think is where the words come in, but I don't get it. I've got like some dense layer of asbestos just preventing me from seeing the light

Saving money is like biking somewhere. You have to work and work and work to get where you want to go. Using a credit card is like finding a downhill. You get to coast for a while, but eventually you have to climb back up again.

The debt you have is a constant uphill you have to work against to get where you want to go. It holds you back. Paying down your debt will take years, yes, but what else are you going to do? Have you seen *The Count of Monte Cristo*? There's an old man in prison who says it will take 8 years to dig a tunnel out - when Edmund groans, the old man says "Do you have something else to do? Some other pressing appointment, perhaps?".

What we try to do here is be on the other side of the equation. We save money to create a constant downhill. We build up a big enough pile that we can rent it out and live just on the rent money.

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
Wow, awesome analogy!!  I'll have to remember that one :)

Using debt is like biking downhill...nice and easy... but eventually you'll have to go uphill just to get back to where you started... best to bike uphill to start with :)

Cecil

  • Bristles
  • ***
  • Posts: 301
  • Age: 35
  • Location: Vancouver, Canada
And the pain of biking uphill is always more than the benefit you get from going downhill - prefer to at the very least find a flat route that goes around. :)

GoStumpy

  • Stubble
  • **
  • Posts: 243
    • YNAB = The ultimate budgeting software
And the pain of biking uphill is always more than the benefit you get from going downhill - prefer to at the very least find a flat route that goes around. :)

We'll call that living off your savings :)