My wife and I have approx. $9,000 in credit card debt - $7,500 on one card thats 14% interest and the rest on a card thats 18% interest. We have an online money market savings account that yeilds 4.75% - My question is should I be paying every dollar towards paying down the debt or should I be putting money into our savings - we want to buy a house in the next year or so. finance articles always say to pay yourself first... but I'm torn. Any thoughts?
2007-08-09 05:25:58 · 13 answers · asked by mbschlosser 3 in Business & Finance ➔ Personal Finance
I hate to point this out, but you mentioned that you and your wife want to buy a home in the next year. If you pay off your debts, you may have to wait longer than that to buy a house.
Paying off the debt is the highest immediate return for your dollar since your rates are really high. However, you should also be setting aside money for a downpayment. Figure out how much you can reduce your overall monthly spending. Try to stick to your cash budget. Of the remaining money from your monthly take home, put 70% of it towards paying off debt and the other 30% towards savings.
The only thing is you might have to realize that it's just not possible to buy within a year.
2007-08-09 06:38:34 · answer #1 · answered by PK 5 · 0⤊ 0⤋
Generally on 'closed' debts the APR won't change .... so it's fixed ... you therefore, as you have said, have a minimum payment you have to make each month..... Well done for paying off your car - now you need to look at how best your 'extra' $450 dollars can be used .... I would suggest that when you make payment on your debt what you do is go in in person - pay the minimum amount and pay an ADDITIONAL amount - say $100 dollars - as well, but you must make it clear to them that this payment is TO BE MADE AGAINST THE CAPITAL.... What this means is you are meeting your obligation on the interest side (your minimum payment) so you are 'keeping your side of the bargain'.... your additional payment will help to reduce how much interest is being calculated against a capital figure ... so what it looks like is this: 66,00 - minimum payment (guessing) $340 per month ...... $100 - Payment against capital ...... Means interest calculated next month is AGAINST 6500 now ..... Then each month you still pay the $340 AND you pay the ADDITIONAL 100 - which you state each time you make this payment ...... Do this each month and you may find that your minimum payments will not only be paying your interest obligations, but will also quite soon start to be payments against your capital..... You may find you can get rid of this debt sooner rather than later..... In the meantime you can building up a savings with your extra 350 - and perhaps consider making a lump sum payment against your debt .... or not get into debt with something else you want to buy..... I generally err on the side of caution in that if my debts are paid up - then if I have no money - apart from not being able to go out and enjoy myself - I won't have any worries because I don't owe anyone anything .....
2016-04-01 07:41:01 · answer #2 · answered by Anonymous · 0⤊ 0⤋
As your money is only making you 4.75% interestm and your debt is costing you 15% interest, I would say that you are going negative. Pay down your debt but keep some in savings. You must keep an emergency fund. Make sure if you pay down your debt, that you do not just rack it back up on the credit cards, because in reality you are spending your savings. If you do not think you or your wife can do this, then save and gradually pay down your debt.
2007-08-09 05:30:58 · answer #3 · answered by Thomas K 3 · 1⤊ 0⤋
If I were you, I would first of all attempt to negotiate a lower interest rate with your credit card companies. If you have a good payment history (never late) they are usually willing to do this for you. I would then pay off the card with the highest rate as fast as you can, but still stick some money away too. You may only be able to save a small amount until that high interest card is paid off, but at least you're saving something. The other card, I would just make the minimum amount payments until that high interest card is paid off, then cut it up. Credit card companies are modern day loan sharks, but you kinda have to play the game with them, so to speak, to keep them from ruining your life. Good Luck!
2007-08-09 05:36:39 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Because your goal is to buy a house shortly, pay down the debt. Don't neglect your savings however. You never know when an emergency may occur.
If you have a plan to deal with the debt, you can knock it out within around the same time you plan to buy a house. It is always a good plan to become a homeowner with little or no debt.
Check Yahoo finance for a debt paydown calculator and get started.
2007-08-09 05:31:28 · answer #5 · answered by ken erestu 6 · 1⤊ 1⤋
Pay down your debt. You will yield a 14% return by taking that approach. One important caveat is that if you need a down payment for your house. Then (and only then) would it make sense to retain your savings until you buy. It is possible to buy with zero down, but you will be subject to PMI (mortgage insurance) which will end up costing you more than if you kept your savings to use as a down payment (instead of using your savings to pay off credit card debt).
Make sure that the advice that you listen to factors in the fact that you will need that money as a down payment (and the ramifications for not having a down payment), and not just the difference in interest.
For me, I already have a house and paying off the debt would be a no brainer, but you have to look more closely at the situation.
2007-08-09 05:31:24 · answer #6 · answered by mark 7 · 3⤊ 0⤋
Here's what my hero, financial expert Dave Ramsey, says...
1. Put $1,000 away for emergencies, and QUIT USING CREDIT CARDS. Spend only cash. If you don't have cash for something, you can't afford it.
2. Pay off ALL YOUR DEBT. Why invest at 5% if you have credit cards at 14 and 18%!?!?
3. Once you have all your debt paid off, take all the money you were putting at debt and start saving it till you have 3-6 months of savings in reserve.
4. Invest that extra money each month, now that you have reserves built up, in conservative investments and gradually get more and more aggressive.
2007-08-09 05:33:28 · answer #7 · answered by Keep On Trucking 4 · 2⤊ 0⤋
Pay down the debt first. Start with the one that has the least amount left and pay it down, then the next. THEN start paying into the money market account. The less debt you have, the better it will look for buying a home in the future.
2007-08-09 05:29:40 · answer #8 · answered by Anonymous · 0⤊ 1⤋
It's simple -- pay off the debt. It's costing you more than you are earning on your savings, so you are losing money by putting money into your savings while you still have the debt -- in other words, in the situation you describe, you can't possibly increase your assets unless you get rid of the debt. Paying the debt IS paying yourself first.
2007-08-09 05:30:12 · answer #9 · answered by Matthew O 5 · 1⤊ 0⤋
do the math....you pay more interest than you earn....pay the interest you owe if it's higher than the interest you earn....cause 14 minus 4.75 is what interest you are paying kinda if it's the same amount in each account
2007-08-09 05:28:46 · answer #10 · answered by Anonymous · 0⤊ 0⤋