Cod
Joined: 18 Sep 2006
Posts: 1
Location: Brandon, Suffolk, UK
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 Posted:
Mon Sep 25, 2006 6:31 am Post subject:
Pay Minimum or No |
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Due to some recent events in my life, I've gotten myself into a bit of debt. I currently owe around $1800 on my two credit cards, $2600 on a personal loan, and $4500 on a car loan. Giving me an overall total of $9900 owed. Along with all of this credit debt and these loans, my savings has dwindled to a few hundred bucks. And since I'm just now learning how important financial stability is (late bloomer), I realize I need at least 3-months pay in my savings account and I'm nowhere near that. I maybe have 1-month saved up. I do have a few thousand dollars invested in the my retirement though. And if my financial situation isn't in trouble right now, I have a child to be born in March 2007. Don't get me wrong though, I'm looking forward to a child with my wife, but the timing is kinda bad.
Basically, I'm wondering if I should just pay the minimum on all my debt until I get at least 3-months pay saved up? Or is it better to pay more than the minimum and just take longer to get savings built?
Any help is greatly appreciated.
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TwoCents43
Joined: 27 Nov 2006
Posts: 6
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Mon Nov 27, 2006 2:44 am Post subject:
Re: Pay Minimum or No |
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| Cod wrote: | Due to some recent events in my life, I've gotten myself into a bit of debt. I currently owe around $1800 on my two credit cards, $2600 on a personal loan, and $4500 on a car loan. Giving me an overall total of $9900 owed. Along with all of this credit debt and these loans, my savings has dwindled to a few hundred bucks. And since I'm just now learning how important financial stability is (late bloomer), I realize I need at least 3-months pay in my savings account and I'm nowhere near that. I maybe have 1-month saved up. I do have a few thousand dollars invested in the my retirement though. And if my financial situation isn't in trouble right now, I have a child to be born in March 2007. Don't get me wrong though, I'm looking forward to a child with my wife, but the timing is kinda bad.
Basically, I'm wondering if I should just pay the minimum on all my debt until I get at least 3-months pay saved up? Or is it better to pay more than the minimum and just take longer to get savings built?
Any help is greatly appreciated. |
Use the interest rates to answer your question. For example, let's make some assumptions here:
Personal Loan 14% interest
Credit Cards 12% interest
Car Loan 9% interest
Savings Account 4%
That is the order in which any "extra" money should go. Pay more than the minimum against your highest interest loan - which ever that may be. When you have that paid off, roll the entire amount you use to pay plus you monthly extra into the next highest thing.
Now what gets interesting is the point where you have say only 9% car loan remaining...you should still put your extra cash towards that...BUT (there is always a BUT) what if you now could earn 10% in some savings option? Then you go with the highest interest (savings or debt).
That's my rule of thumb because for the most part...debt will usually charge you a higher interest rate than savings will. But don't always assume that.
In your case, I would strongly urge you to pay off that debt...and if you did need emergency cash down the road...at least you will have the room on the credit card if need be. Yes, life will throw you curves, but it is sort of like a two steps ahead, one step back...one day however...you'll have the cash to start building your emergency fund.
Good Luck. |
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