Where should the money go?

Question

Lots of debt, well about 3K worth (from both hubby and I). We will have extra money coming in these next few months (Financial aid refund as well as tax refund). I want to pay down our cards by at least half, but at the same time our emergency fund is slacking.

Here's a rundown:
Debt: $3200
Emergency Fund: we have $300 right now.
Cash Deposit (not to be touched) has $2100
Financial aid refund is about $1200, but I need some of it to buy books.
I have no idea what our tax refund is going to be like. We have a child, so we have that credit. Plus at my job, I file as "Single, no exemptions". So I'm hoping about a $2000 refund.

The main question. Should the money bolster our savings, or go to paying down the debt?

Oh and to clarify, i file as "Married, but withold at higher single rate", since I know that any money taken out, I get back anyway. My paychecks are a bit smaller, but the money once a year is more.

::shrugs::

Answer 1

Assuming that the debt is from high interest credit cards, pay down the debt. This reduces your interest accrual and frees up the credit cards for emergencies later.

If you put it in an emmergency account at a bank, you will get minimal interest while your credit card debt increases faster than the interest you will be earning.

Remember this simple rule, not paying out high interest is as good as receiving high interest.

Answer 2

Should the money go to reducing debt or into savings?

Always to pay down debt, for two reasons. The interest you pay on debt typically can run 2-10 times the amount you can earn in a savings account, and it reduces your cash needs NEXT month. And that allows you to save more, or borrow less.

Answer 3

ALWAYS pay down the debt: you're accumulating interest even as you read this. paying down the debt reduces the interest, thereby saving you serious money.

putting it in savings does nothing. if you have an emergency and need the money, you can always charge it back on the card, but even then, you will have saved money on interest.

Best possible gift you and spouse can give each other is get out of debt ASAP: even if this is not immediatley possible, start planning for it now.

Answer 4

You should pay down the credit cards. You can use the credit card limit as flexibility "emergency funding" . Some credit cards have ridiculous interest reates,

Are you sure that you make more money by filiing separately?

Ivan

Answer 5

first u clear off ur debts .why becoz its just like an virus.once it gt infected it is very difficult to come out. it jsut goes on adding never never it goes down. cut down as much as possible of ur extra expenses. credit card is the worst part of the life. it kills ur imaginary cand creativity part.heavy interests if u miss one month pay.money we can earn later but not debts.we can live happy life once it is cleared.though i tmay take little bit time we have to suffer. thatz it .suffering is eazy rather than getting killed with debts daily.

Answer 6

I wouldn't relay on banks I would put it under my bed or under the pillow because Bank have already got moneyu from profits we got

Answer 7

Put one third of the money toward saving, and two thirds of the money toward your debt.