pay off credit card or save the money, help me decide

[Shoopy]

I want to thank everyone for taking time to help me analyze and talking me through everything

.

I''m still trying to decide on what to do. I shifted things around a bit in my spreadsheet and if I put in a certain amount each month, I can pay everything off in 15 months. That''s not bad but I hate the idea of carrying around this debt

.

Mere-I pay for health insurance for myself and DD.

 

[Shoopy]

Oh wanted to pass along these two calculators that I use to figure out how much to put towards my credit cards in case anyone is interested:

I use this one to figure out what the minimum payment would be each month.

And I use this one to play around with different payment options.

 

[DivaDiamond007]

Date: 4/15/2010 5:35:53 PM
Author: Guilty Pleasure

Date: 4/15/2010 5:26:00 PM
Author: fiery

Date: 4/15/2010 5:21:11 PM

Author: Guilty Pleasure

I would certainly pay off the credit card. I''m a bottom line type of person, and unless your savings return is higher than the interest on your credit card, you are losing potential money. I would plan have enough cash to cover several months of only those bills which must be paid in cash (or check) and not save up for the others; put the rest of the surplus into the credit card payment. If you have to add debt later to the credit card, that is still better in my opinion than keeping debt now.


just my two cents.

GP, you and my financial side are on the same page

I just keep thinking what if it takes him over a year.


Thank you to everyone who has chimed in so far. You all are giving me a lot of good pointers

What if it does take him a year? You''re out of money AND you still have a looming credit card bill on top of your month to month bills. I can totally understand the mentality of having a cushion and have no disrespect for that choice if you do go that way, but just think about the bottom line. I would chose the credit card as my safety net if I were in your shoes. My thinking would be, ''Pay off the credit card now, give less money to someone else in the long run and be debt free going into potentially hard times. I can always build the credit card debt back up if it comes to that.''



eta: I may be misunderstanding, but did you say that the difference would be 3000 dollars, meaning that is the amount you''re paying in extra interest if you wait to pay it off?

This is what I would do. Pay off the debt now, and save the payments that you were making to the cc company. When necessary you can dip into your savings for living expenses and if absolutely necessary you can use your cc''s to make up any difference. I wish you the best of luck and hope your husband will be succesful in finding a job quickly.

 

[Shoopy]

Date: 4/15/2010 5:35:53 PM
Author: Guilty Pleasure

Date: 4/15/2010 5:26:00 PM
Author: fiery

Date: 4/15/2010 5:21:11 PM

Author: Guilty Pleasure

I would certainly pay off the credit card. I''m a bottom line type of person, and unless your savings return is higher than the interest on your credit card, you are losing potential money. I would plan have enough cash to cover several months of only those bills which must be paid in cash (or check) and not save up for the others; put the rest of the surplus into the credit card payment. If you have to add debt later to the credit card, that is still better in my opinion than keeping debt now.


just my two cents.

GP, you and my financial side are on the same page

I just keep thinking what if it takes him over a year.


Thank you to everyone who has chimed in so far. You all are giving me a lot of good pointers

What if it does take him a year? You''re out of money AND you still have a looming credit card bill on top of your month to month bills. I can totally understand the mentality of having a cushion and have no disrespect for that choice if you do go that way, but just think about the bottom line. I would chose the credit card as my safety net if I were in your shoes. My thinking would be, ''Pay off the credit card now, give less money to someone else in the long run and be debt free going into potentially hard times. I can always build the credit card debt back up if it comes to that.''



eta: I may be misunderstanding, but did you say that the difference would be 3000 dollars, meaning that is the amount you''re paying in extra interest if you wait to pay it off?

Sorry GP just saw this question.

No, the extra interest we are paying if we hold off on paying now is a lot more than just the $3,000 unfortunately. What I meant was that if we pay this card off now and the other by October vs doing the plan I''m on now that''ll put us out to next year, the bottom line end of year number for 2011 will only differ by $3,000. But that''s not a very effective measure, just a little tidbit.

 

[ladypirate]

Date: 4/16/2010 9:56:30 AM
Author: fiery

Sorry GP just saw this question.


No, the extra interest we are paying if we hold off on paying now is a lot more than just the $3,000 unfortunately. What I meant was that if we pay this card off now and the other by October vs doing the plan I''m on now that''ll put us out to next year, the bottom line end of year number for 2011 will only differ by $3,000. But that''s not a very effective measure, just a little tidbit.

To me, this makes it even more important to pay off the credit card now--3000 is a lot of money.

 

[RaiKai]

Date: 4/16/2010 10:22:39 AM
Author: ladypirate

Date: 4/16/2010 9:56:30 AM

Author: fiery


Sorry GP just saw this question.



No, the extra interest we are paying if we hold off on paying now is a lot more than just the $3,000 unfortunately. What I meant was that if we pay this card off now and the other by October vs doing the plan I''m on now that''ll put us out to next year, the bottom line end of year number for 2011 will only differ by $3,000. But that''s not a very effective measure, just a little tidbit.

To me, this makes it even more important to pay off the credit card now--3000 is a lot of money.

Ditto this!

I do get what others are saying about having a cushion...I really do...but that cushion is not much help if it means you need to use it to make your minimum payments to maintain your credit card balance. And if the extra interest you are going to pay by holding off is MORE than $3,000 (that is a big chunk!) I would really support paying off the debt. Start scrounging away little amounts from now on in (i.e. what you save by not having to make those payments!) and look at other ways to gain a little extra money before then (i.e. a few more hours of overtime or part time work).

 

[Shoopy]

Date: 4/16/2010 10:59:30 AM
Author: RaiKai

Date: 4/16/2010 10:22:39 AM
Author: ladypirate

Date: 4/16/2010 9:56:30 AM

Author: fiery


Sorry GP just saw this question.



No, the extra interest we are paying if we hold off on paying now is a lot more than just the $3,000 unfortunately. What I meant was that if we pay this card off now and the other by October vs doing the plan I''m on now that''ll put us out to next year, the bottom line end of year number for 2011 will only differ by $3,000. But that''s not a very effective measure, just a little tidbit.

To me, this makes it even more important to pay off the credit card now--3000 is a lot of money.

Ditto this!

I do get what others are saying about having a cushion...I really do...but that cushion is not much help if it means you need to use it to make your minimum payments to maintain your credit card balance. And if the extra interest you are going to pay by holding off is MORE than $3,000 (that is a big chunk!) I would really support paying off the debt. Start scrounging away little amounts from now on in (i.e. what you save by not having to make those payments!) and look at other ways to gain a little extra money before then (i.e. a few more hours of overtime or part time work).

Unfortunately I don''t get overtime because I''m salary and it''s in my contract that I''m not allowed to get another job.

When the time comes, I know FI will be willing to get whatever job he could find. Problem will be finding that ''whatever'' job.

The minimum payments on the ccs are not that much BUT I absolutely hate just giving the minimum payment and try to avoid it. I''m still crunching away...

 

[Mara]

i say save it. i have a friend whose husband has been out of work for 1.5 years. he has had 2 short contracts but everything else he just interviews for and gets so close and then the req is frozen or they take someone internal. it can be frustrating and a long process.

best case is he finds something fast and you pay off the card sooner. but i'd feel better having more of a cushion, esp with a baby. now that we have J i am so much more money oriented than before... the level of additional responsibility is definitely mental.

if you guys don't already can you transfer the card debt to a 0% interest? we are still getting offers for this stuff from our card companies. then at least you aren't paying interest and it's just sitting there.

ETA i saw that you will be paying more than $3k in interest...wow that is a lot. i would really try to see if you can get a 0% offer, did you call your card companies to ask? sometimes they will go that route if you contact them. i hate carrying cc debt as well, so i feel your pain but i dunno, i am way paranoid in this market right now.

 

[Dancing Fire]

firey..."NO BRAINER" pay off your CC if you are paying more than 1% interest.

 

[Shoopy]

Yes, my one card has a ridiculously high interest rate

. I got it years ago when I had no established credit and never thought to call and reduce it since I hardly ever used it. It wasn''t until recently that we used it for some emergency big purchases. I''m not a ''use the credit card for dinner and movies'' kind of person but these particular purchases were emergency. IN hindsight I should have asked the store if they had a credit card because I''m more than certain the rate would have been a lot less but everything happened quickly.

I''m going to check out the other credit cards. I don''t know of any that is offering 0% but any rate would be less than what I''m paying now.

 

[meresal]

Here are a few on Creditcards.com

Be sure to check out the fine print on the specific websites, but these are usually promotional periods to try and get you to pay off the cards asap. Looks like a few of them are for the first 6months, 12months, etc.

http://www.creditcards.com/balance-transfer.php

 

[ljmorgan]

When hit with an unexpected amount of cash, I would normally recommend to pay off debt in lieu of putting the money into savings. However, with job and income uncertainty looming in the near future for you, I definitely think that you should stash the cash. You have to be prepared for a job hunt to take longer than expected, and I think that it''s best to have cash in hand. If your family were to be hit with a financial disaster, the creditors are your last priority. I say hang onto the cash, ensure that your family situation is stable, and pay off the credit card when you have solid income on the horizon again. Good luck fiery!

 

[zoebartlett]

Date: 4/15/2010 11:26:35 PM
Author: megumic
As credit card debt is a true no-no in my book, and considering your current financial situation, I think I''d meet in the middle with this one. Instead of paying the minimum each month or going all in and wiping out the balance, I''d pay the minimum and then some each month to chip away at the debt at an accelerated speed. This way your monthly bill should reduce quicker, but you''re also not out the cash you may need in the event FI is unemployed for a longer period of time.


Kudos to you for even having a financial plan in place! I''m always impressed when others can project their future spending, as it''s definitely something I most certainly cannot do!

I think this is what I''d do if I was your situation. It seems like a good balance of paying off cc debt quicker and putting some in savings.

 

[sunnyd]

Date: 4/16/2010 2:11:53 AM
Author: ladypirate
I say pay off the credit card--if you need to use it later to cover bills while your FI looks for a job, you can, but this way you at least save the interest you would be paying on it for the next several months.

Yep, ditto.

 

[Shoopy]

Thanks again for all of your help!

Ok so I was totally looking at the wrong number previously and no, the interest wouldn''t be more than $3k but it would be really close.

This is what we came up with:

-If we don''t do anything, we''ll have x amount in savings at the end of the year. It''ll give FI 6 months.

-If we pay off all of the credit card now (still have one remaining), we''ll have about 40% less by the end of the year in our savings. FI will have 3 months.

-If we do sort of a half credit card/half savings thing, we''ll have 17% less in savings by the end of the year. He''ll have about 3.5 to 4months.

There''s other stuff I''m not including in our amount such as my yearly bonus that I get in September because even though we have received the bonus in previous years they could say that they aren''t giving it this year.

We decided to do half/half. What remains of our tax refunds we''ll put in a separate account so that we don''t use it and if he does get a job before the 4 months are up, then we''ll decide what to do with it then. If he doesn''t well then we''ll have that money for expenses.

I''m so tired of having credit card debt. The other debt we have I can live with but it just makes me

to be giving money to credit card companies. Not even the points are worth it

 

[delayedreaction]

Half and half sounds wise.

I would just like to point out that there''s a lot of assumptions going out that the credit card companies won''t just flat out close your account if you have a 0 balance, which is no longer a surefire assumption to make with the credit card reforms that are coming into effect this summer. Credit card companies are shutting down lines open lines of credit or lowering credit limits and doing other things that are designed to protect their bottom lines.

 

[PumpkinPie]

Date: 4/16/2010 6:50:30 AM
Author: FL Steph
I''ve already chimed in on this, but I wanted to mention to you that you might want to pick up Dave Ramsey''s Total Money Makeover book. Several very wise members here (including NEL) are fans of his. His book outlines a solid, easy plan for achieving the goal of getting out of debt. He is very much against carrying any debt of any sort except a mortgage, however after many years of listening to his TV and radio show, he always says that if there is a certain job loss looming, to save every penny for just in case and begin on the plan again once you are safely employed. You need to make sure you have that money for a cushion for basics like food, shelter, and transportation if it takes way longer to find a job than expected.

ditto - I LOVE Dave Ramsey!

 

[megumic]

I also wanted to suggest calling your cc company and asking for an interest rate reduction. Although they won''t always do it, sometimes they do!

 

[Mara]

ditto meg re: asking for a reduction, they might, esp if they feel like it would help you not default on the payments.

also ditto re: companies closing open lines of credit. this happened to one of my cards this year that was 0 for over a year, they were basically like well you obviously don''t need it, so we closed it. i didn''t care, but it was interesting.

good luck fiery and good for you guys on trying to stay smart in a trying financial time. hope FI finds something very fast!!

 

[Dreamer_D]

Date: 4/15/2010 5:13:42 PM
Author: cara
I''m pretty conservative about safety cushions and such, so with the impending job loss I would save the refund $$ and keep making your payments on the debt for a payoff in 2011. If FI gets a job early in the process I would still keep at least 3 mo of savings in reserve and then use the rest of the held-back money to pay off the credit cards once he is safely employed again.

Just me personally, other people would make other decisions!

Ditto. It takes an average of 6 months to find a job, so I would want the safety net.

FWIW, if the job loss was not coming I would say pay off the debt for sure.

 

[Dreamer_D]

Can you apply for a low interest Line of Credit to carry the debt? DH and I never carry any credit card debt because we have a prime plus 2 line of credit for emergencies or situations where we need the extra credit.

 

[soocool]

If you feel your credit rating will improve if you pay it off , this may be to your benefit. If it has no effect (your credit rating is sound) then save the cash if you''d like. BTW, if your husband''s job search involves a job that requires bonding then his future employer will be allowed to check into your credit rating if it is a business necessity, If the job does not require bonding then it is not permissible to ask about your credit rating.

Personally, I would pay off the credit card and bank the payments you would have made on this card or increase the payments you make on any other cards you have.