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Use savings to pay off debt?

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Ideal_Rock
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This is kind of piggybacking off yesterday's credit card debt question. I realized that most who responded have no cc debt or pay it off monthly. So it got me to thinking, should I use the money in our savings account to pay the credit card? I wouldn't be able to pay all of off because currently we have $6,000 in the account and I wouldn't want to drain it completely anyways but should I pay half?

Our scenario is a four person household, we have a mortgage payment and the cc payment, no car loan and no student loans. I stay home with our youngest son so my husband's salary is it. I know in the near future the timing belt, brakes, and tires on the car will need replacement. I had always thought that keeping as much as I can in the savings account was crucial for us living with just one income even though we pay more in interest on the card than we get for having the money sitting in savings.

I'm really open to any suggestions you may have.
 

VRBeauty

Super_Ideal_Rock
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I know the conventional wisdom is that you should use the money which is earning virtually interest to pay off the loans that are costing you lots in interest... but you also need that cushion in the bank in case something serious happens. You want to have a few month's worth of expenses in the bank so you don't have to go back to the credit cards if a crisis hits. So I'd say no, your savings are not yet robust enough to raid them to pay off credit cards. The better strategy would be to look for ways to reduce spending, and use those savings to pay off your credit cards more quickly.
 

PintoBean

Ideal_Rock
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I would look into whether your credit card offers a 0% interest offer so that you are not accruing high interest on your balance, and try to pay off the balance within the period of the 0% offer. This way you can avoid dipping into savings.
 

telephone89

Ideal_Rock
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I probably wouldn't dip into your savings, but would accelerate how much you are putting towards the CC bill.
Ex, stop contributing to savings for a few months and put extra toward the CC. That way you still have your savings cushion, which is important imo, but are making more headway on the cc bill.
You could also put tax refunds, bonuses, etc toward the cc instead of splurging for a bit as well.

If you do decide to dip into your savings, make a plan for how you are going to pay it back - how much, how often, and how quickly you want it paid off. And stick to it! If your Hs income is relatively high and you could repay it quickly, it *might* be worth using a small chunk of savings, paying it back, using a small chunk, etc. But if you are not comfortable doing that, then absolutely do not.
 

Puppmom

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I would not. I think you can still make a plan to pay it off it an accelerated fashion. I realize it'll cost you more in the long run but, if you exhaust your savings and have an emergency expense, it'll likely end up on a credit card anyway. I would try to find a credit card that has 0% for 12-15 months on balance transfers and move it and pay it down as much as possible.

We've been a one income family for 2 years and I understand how tight it can be. I know we all probably scared you with our no credit card debt but those of us with none were just the most likely to respond in my opinion. AND I don't think you have an unmanageable situation on your hands. $8k in debt can be paid off pretty quickly with solid planning and without giving up your savings.
 

inheritedring1234

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With only $6K in savings, I would NOT dip into that to pay off your credit card unless you have another emergency savings account with at least a few months savings in cash or a very liquid asset.

As others have mentioned, you should check to see if your current credit card provider has any lower APR offers or if you can get a 0% APR offer from another credit card company if you roll over the balance. The devil is always, always, always in the details. But its worth checking out if you can get a better rate elsewhere. And definitely put some additional money towards this CC debt each month. The faster you pay it down, the less you pay in interest.

GOOD LUCK!
 

kenny

Super_Ideal_Rock
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IMO if you have savings then you don't acquire any debt you have to pay interest on except for, mortgage, education, and zero-interest loans you are absolutely certain you can/will pay off to avoid penalties/interest.

Savings today pays nearly zero interest.
So that money is going to waste if you are carrying debt that has interest.

IMO a bank statement that shows a nice savings balance is ridiculous if you are carrying bad types of debt.
 

House Cat

Ideal_Rock
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Dave Ramsey has an awesome plan for debt.

His book, The Total Money Makeover is life changing.

His baby steps:

https://www.daveramsey.com/baby-steps/


It doesn't make good sense to pay 20% interest on credit cards, while keeping $6000 in the bank, making 1% or less. Would you pay the bank 19% to keep your money in savings? This is essentially what you are doing.

According to the Dave Ramsey plan... and this is what I would do...

Keep $1000 for emergencies.
Use the rest to pay off debts
Pay off the rest of the debt
Start saving again.

Good Luck!! Debt sucks. We had so, so much debt... sigh. Now, we don't, thanks to this plan.
 

Arcadian

Ideal_Rock
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I agree with Pinto Bean. Look at your credit situation.

Whats the age of this card? Is it in good standing? Is utilization on the card high? (30% or more of the Credit Limit?)

I would look to see if any of your other CC's if you have any allow you to transfer at 0%. However most if not all will have a 3% transfer fee.


Most will allow it after a certain amount of time if the account is in good standing (usually 6 months) so find out to be sure. You may also look to get a card that allows you to transfer right away with 0% but be aware they will charge a transfer fee.

Then as long as you're not at high utilization, transfer some (not all!) to that card and pay off the other higher interest rate card first. This will give you SOME breathing room on the other part of your debt. Do NOT use the other card for anything other than moving money around to give you room to breathe.

If your debt is NOT affecting utilization on the card, and the interest rate is just high, Call customer service. Ask to get the rate lowered. Depending on the card issuing company they will to a permanent lower or temporary which in turn can save you money. They usually don't require hard pulls on your credit report but always ask.

Some people will hate me for saying it but its not the end of the world if you carry a balance month to month. Yes it means you pay a rate but you'll do that for most loans anyway. Its about how you do it and how well you can juggle this. Many institutions will allow you to check if you qualify to get a card without hard pulling on your credit report. (always check it if you can, in the US we can get free credit scores once a year from all three bureaus).

Don't hard pull if you're planning on doing something uber important within 6 months, like buy a house. In that case, it may well be useful to ask for lowering of the interest rate and paying the card down.

If this isn't what you want to do, then of course pay it off and be done. I personally wouldn't, that money IMO should be used in emergencies but you have to decide if this is emergency enough (or not).
 

liaerfbv

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I would not drain savings to pay off debt. There's something to be said for some peace of mind and I'd rather lose a bit in interest than be worrying about not being able to cover something. I highly recommend the budget program You Need a Budget (YNAB) because it absolutely changed my relationship with money a few years ago. I would just make the debt payoff a priority for the next few months and throw as much extra as you can at it. It really does add up.
 

qtiekiki

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Unless you have a high yield savings or are investing with your savings, you are barely making any interests on it. I would leave a little bit in the savings in case of emergency, and use the rest to pay down the CC debt. It doesn't make sense to me to have a savings and carry a "high" debt.
 

alexah

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About 10 years ago, a friend of mine asked for my help... he had nearly $20,000 in credit card debt and was paying interest in the 14-19% range. We figured out that he qualified for a personal bank loan at a rate of 6% so we shifted it all there. It was much easier to pay it off that way.
Any way you can get the rate down is great (open another card with a lower rate, as others have mentioned, is another way).

First thing I would decide though is how little you're comfortable keeping in savings... If you're good with $4000 and your husband is good with $2000, maybe split the difference and keep $3000 and use the rest toward paying down the cc debt.
:wavey:
 

momhappy

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StephanieLynn|1459874219|4015717 said:
This is kind of piggybacking off yesterday's credit card debt question. I realized that most who responded have no cc debt or pay it off monthly. So it got me to thinking, should I use the money in our savings account to pay the credit card? I wouldn't be able to pay all of off because currently we have $6,000 in the account and I wouldn't want to drain it completely anyways but should I pay half?

Our scenario is a four person household, we have a mortgage payment and the cc payment, no car loan and no student loans. I stay home with our youngest son so my husband's salary is it. I know in the near future the timing belt, brakes, and tires on the car will need replacement. I had always thought that keeping as much as I can in the savings account was crucial for us living with just one income even though we pay more in interest on the card than we get for having the money sitting in savings.

I'm really open to any suggestions you may have.
I probably wouldn't dip into savings unless the credit debt has a high interest rate. Another thing you might want to look into (before dipping in to savings) is to shop around for a lower interest rate - maybe transfer the balance to another credit card, pay it off with a home equity line, etc.
 

Haven

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I just wanted to echo House Cat's post--Dave Ramsey's advice for getting out of debt and staying out of debt is fabulous. And it really is life changing. Your library probably has several copies of his books, I cannot recommend them enough.

I would follow DR's plan as House Cat detailed.
 

Dancing Fire

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StephanieLynn|1459874219|4015717 said:
This is kind of piggybacking off yesterday's credit card debt question. I realized that most who responded have no cc debt or pay it off monthly. So it got me to thinking, should I use the money in our savings account to pay the credit card? I wouldn't be able to pay all of off because currently we have $6,000 in the account and I wouldn't want to drain it completely anyways but should I pay half?
Yes, unless it is 0% interest. You don't really have $6k in saving b/c you owe the CC company over $6k.
 

december-fire

Ideal_Rock
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I'd use the savings to pay down the credit card.

Like Dancing Fire, I don't view the $6,000 as 'savings'.
It belongs to the credit card company. You can give it to them now or later.
But the longer you hold onto it, the more money you're paying (wasting) on interest.

Look into getting a line of credit, which should have a much lower interest rate than the credit card.
Use the line of credit for the upcoming, expected car repairs (if necessary).

You can build actual savings with the money that would have gone as payments to the credit card company.

The reason some financial advisors might recommend against using savings to pay off credit cards is based on human behaviour, not finances.
Some people have trouble with credit cards. If they want something, they 'just put it on the credit card' whether or not they have the cash for the item. If such a person used savings to pay off the credit card, but didn't change their financial approach to life, they'd quickly run up the credit card again. They'd then be in a worse situation, since they no longer had their savings.

So you need to consider how you deal with available credit, whether its a credit card or line of credit.
I think its a good sign that you're thinking about your financial situation and posed the question in this thread. :))
 

Lady_Disdain

Ideal_Rock
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In my view, yes. It doesn't make sense to keep money earning basically no interest and paying interest on CC debt.

And what if an emergency comes up? Let's look at the scenarios, assuming a $4000 emergency after a month and 1%/month interest on the CC. Hopefully there would be a CC payment as well but I am keeping it simple.

Keep Savings account
CC Opening Balance - $10,000 (just an assumption)
Savings Opening Balance - $6,000
Net worth- -$4,000

Interest Paid in a month - $100

CC Closing Balance - $10,100
Savings Closing Balance - $2000
Net worth- -$8,100

Using Savings to pay off CC
CC Opening Balance - $4,000 ($10k-$6k from savings)

Interest paid in a month - $40

CC Closing Balance - $8,040
Savings Closing Balance - $0
Net worth - -$8,040

Of course, the longer before the emergency comes up, the more interest you save. In the best case scenario, it doesn't happen at all.
 

rubybeth

Ideal_Rock
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I would just like to echo what others have been saying. We used Dave Ramsey's method to pay off student loan debt, and now I'm obsessed with Mr. Money Mustache and his plan to retire early. I really like using Mint.com to track where every penny goes, budget and track goals, and plan for the future.

I would use some of the savings to help pay down the credit card debt, but not all of it. Dave Ramsey recommends having a $1,000 emergency fund to begin. You may need to reassess that for yourselves (for example, I like to have one medical deductible worth of cash on hand, for us that's about $2,500).

Use the rest to pay down the card. I'd definitely also check into a balance transfer to a card with lower interest, or ask your credit card company if they can lower it--you can use the large payment as a bargaining chip, either before or after you pay it. "I'm going to be paying this down, could you lower my rate?" or "I recently made a large payment, can you lower my rate?" Play it however you prefer.

Also, your credit cards are a backup emergency fund, if something terrible happens--if you keep only $1k in savings but then the car blows up, you still have the credit card.

And lastly, instead of treating needed car repairs as an emergency, plan to save up and take care of them on a timeline that makes sense. I budget about $100/mo to savings for car repairs.
 

YadaYadaYada

Ideal_Rock
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Thanks for all the advice so far, the majority seem to agree that savings isn't really savings with cc debt and I do agree with that point.

Our available credit on our Chase card is $18,000 so we are right at 30% of available credit being utilized on that card. We have never ever paid late and have had the card for several years. Our credit scores are in the mid 800's. I started with calling them yesterday to lower the interest rate which is currently 13%. They said we were ineligible but can't tell us what the criteria is?! Okay, so the we looked at our available cards. We have other cards we could transfer to but the available limits are not enough to transfer it all to one and I can't have this balance in multiple cards, I would have a hard time keeping track. We did find a card that has enough available credit to transfer to and we called them and they offered 0% for 12 months with a 4% transfer fee. I came up with the following possible scenario:

Use $4,000 to pay the Chase Card from the savings account leaving $2000

Transfer the balance of $2500 to our other credit card for 0% and pay the fee of $100 leaving us with $2600

Have payments applied weekly via automatic debit so the card is paid in 12 months.

We currently have money automatically transferred to our savings account weekly so then I could use that and add a little more to get us to the amount we need to pay monthly. The savings account would just be stagnant then but we would have enough for a car repair or other serious emergency.

Thoughts? I'm also open to an equity line of credit, I don't have any experience with that because we have only ever refinanced and that was almost ten years ago. There is also a credit union in town that we could apply for a loan with if those are better than what I came up with.

Part of our problem is my husband could care less about credit card debt,he accepts it as a part of life, I do not share this view, I hate it. At the same time we almost never use the Chase card now so it's not like I have to worry about him using it he just won't make an effort to put more money towards it, which I suppose is just as bad in a sense.
 

december-fire

Ideal_Rock
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StephanieLynn,

Great plan! Good for you! :appl:

Because you'll have 0% interest and a $100 transfer fee, you'll be saving money by transferring the balance.

Your remaining savings balance will cover the car repairs, and its important that you have a comfort level with whatever financial plan you follow. It seems like this is a good plan to save money and feel comfortable.

Since you and your DH are not the type of people who would run up credit card balances (and I didn't get the sense that you would do that), then using your savings to pay off a lot of the credit card balance is an excellent idea.

Loans or equity lines of credit can be useful, but its unlikely you could get a total interest cost with those options that would be lower than the $100 you'll be paying with your proposed option.

Regarding your husband's attitude:

1. It would be much worse if he was the type of person who thinks its no big deal to run up credit card debt.

2. A lot of people think that certain debts are inevitable and always part of life (mortgages, car loans, lines of credit, credit card debt). Its true that many people will experience at least one of these types of debt over their lifetime, however, its possible to pay off all debt given the right attitude and enough time.

I'd be interested to hear how you feel about your outstanding debt once you've implemented your plan. It should give you a real sense of relief. I won't be surprised if your DH is surprised and pleased with the feeling that comes from reducing and eliminating debt. His view about credit card debt being part of life might change.

Rubybeth is absolutely right that car repair expenses should not be considered as emergencies. Car maintenance and repair, just like car insurance and gas, should be factored into the budget.

My budget happens to be monthly (to coincide with my income), and specific amounts are set aside each month for everything from property tax, utilities to groceries; whether the expense is annual, monthly or weekly is irrelevant. I use Excel spreadsheets, but whatever system works for you is great - paper and pen works too.

You're doing great! Keep moving towards your goal and you'll reach it!

Hugs
 

Gianna

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:wavey:
New here but have you considered negotiating with the credit card company first? One must be patient but I did this 2 years ago. I told management that the company that I was working for had started laying off people and I needed to be prepared. When I finally spoke with someone in settlements I accepted their second offer on writing before paying it off.
 

Arcadian

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Oh boy, chase. They're a little weird in the fact that they want to see use on the card...like heavy use. The CS person you got sounds like a joy (I'm kidding, can't say what I really want)

Ok so, if you're just AT 30% utilization, then pay off 2K of it. That way you still have some money in savings. That will bring you to just under 30%, then sock-drawer that card.

If your F8 scores are good, then you're ok. F8 scores are just a gauge of how well you manage your debt and when you manage your debt well (even with carry over balances) it looks very good to lenders.

That management of course allows you to be able to get I would just start paying off the amount weekly at that point. You could still do a transfer to move some money around to give you 0percent (well you still have the fee but may not be so bad) but that will give you a bit more breathing room on that card.

I'm ok with debt as long as its managed well. Like for instance, I have a car note and a mortgage on our third house, I carry some balances on my CC's which I always keep under 30% utilization, I use zero percents like crazy because...I can. Once I got my scores high I learned how to best take advantage of having those high F8 scores to the max without drowning myself in debt.

I also have savings, but that money doesn't just cancel out because I carry a debt somewhere that has a % rate attached to it. IMO thats ready cash thats there should I need it. Sure I have real ready cash but I think most know what I'm getting at.

So, if you were to take the total amount you would pay to savings monthly and cut that in half, then, pay half of that to the card, you'll still be able to build a good cash kitty. It would be a slightly slower process but I think its a realistic strategy.
 

Haven

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When we were carrying consumer debt we opened two Chase Slate credit cards and transferred the balance over to them. We had 0% financing for one year, and $0 transfer fees. It might be worth checking them out to see if that offer is still there.

I'm not sure if you are so inclined, but Babycenter.com has two fabulous boards: We Are Debt Free, and Family Finances. They are knowledgeable, supportive, and extremely helpful. I found them after we became Dave Ramsey converts, and they helped us stay focused while we paid off our consumer debts. I cannot recommend these resources enough, even if you just go over there and lurk.
 

azstonie

Ideal_Rock
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Good comments above. I'm going to point something out that I've been waiting for someone else to:

There are two types of debt: Secured and unsecured.

Secured debt is a house loan or a car loan---the institution extending you the credit ("loan") can take the actual house, or car, boat, etc etc back if you stop making payments. Some credit cards come with caveats such as "You have a checking/savings account with us and if you miss a payment we can take it out of your account."

This is a less risky proposition for loaning institutions than

Unsecured debt.
Unsecured debt has no "object" attached to it which can be repossessed. And the institution extending you the credit cannot help themselves to your checking or savings account to bring your credit current with them. They will take a loss if you default or fail to pay.

Now granted, both types of default/failure to pay will result in losing points on your credit rating. This goes away in 7 years or less depending on how strategic you are with this.

So.

Depending on what kind of debt you have---secured or unsecured---and what kind of credit you have---outstanding/not outstanding---and what your needs are in the next 7 years versus your present financial situation in terms of food/shelter/clothing/basics, you make a decision.
 

YadaYadaYada

Ideal_Rock
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Arcadian|1459962254|4016206 said:
Oh boy, chase. They're a little weird in the fact that they want to see use on the card...like heavy use. The CS person you got sounds like a joy (I'm kidding, can't say what I really want)

Ok so, if you're just AT 30% utilization, then pay off 2K of it. That way you still have some money in savings. That will bring you to just under 30%, then sock-drawer that card.

If your F8 scores are good, then you're ok. F8 scores are just a gauge of how well you manage your debt and when you manage your debt well (even with carry over balances) it looks very good to lenders.

That management of course allows you to be able to get I would just start paying off the amount weekly at that point. You could still do a transfer to move some money around to give you 0percent (well you still have the fee but may not be so bad) but that will give you a bit more breathing room on that card.

I'm ok with debt as long as its managed well. Like for instance, I have a car note and a mortgage on our third house, I carry some balances on my CC's which I always keep under 30% utilization, I use zero percents like crazy because...I can. Once I got my scores high I learned how to best take advantage of having those high F8 scores to the max without drowning myself in debt.

I also have savings, but that money doesn't just cancel out because I carry a debt somewhere that has a % rate attached to it. IMO thats ready cash thats there should I need it. Sure I have real ready cash but I think most know what I'm getting at.

So, if you were to take the total amount you would pay to savings monthly and cut that in half, then, pay half of that to the card, you'll still be able to build a good cash kitty. It would be a slightly slower process but I think its a realistic strategy.
I'm glad you mentioned that about Chase because I was a little ticked off that they wouldn't lower it, like what more do you need my firstborn? Actually then I would have more money to put towards the debt! Lol.

My husband is really hesitant to take so much money out of the savings account if I were to go with my original plan so we have to talk more and come to some middle ground. He may be more on board with your idea.
 

Bonfire

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I wish you all the best. Digging out from debt is hard. You and DH need to have total agreement on spending and debt in the future or you will end up back where you started. I applaud you for putting a plan in action! All the best to you and your family :wavey:
 

YadaYadaYada

Ideal_Rock
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So a quick update:

I swear my DH and I have talked more about money in the past week than the entire time we have been married. I'm lucky in that I married a human calculator that lives to work numbers. He worked out a budget that will enable us to get the credit card debt down to $2,000 by January 2017. This is possible by taking $3,000 from savings and making $200 monthly payments for the rest of the year. I considered (as you might have seen in the cafe) selling my upgraded engagement ring, however, he really wants me to keep it and I don't really want to part with it so instead we will be selling other things we aren't using (jewelry I don't wear, bikes we don't ride etc) to pay for upcoming events we have already committed to (wedding, Grandma's 85th party etc.)

Mind you we might be able to get it below $2,000 but I think paying off $4,300 in nine months is pretty good. Thank you for all the suggestions and encouragement. :D
 

december-fire

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StephanieLynn,

That's wonderful! :appl:

I'm so glad you'll be taking a substantial amount off your debt and that you and your DH worked together on this plan! Finances can be a source of comfort or cause great stress. Couples need to be on the same page about what works for them.

Obviously, I don't know you, but I'm always happy to hear about people getting onto more stable financial ground. Think about the extra money you'll have when this debt is paid off! :))

Thanks for providing the update!

:wavey:
 

YadaYadaYada

Ideal_Rock
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december-fire|1460239910|4017392 said:
StephanieLynn,

That's wonderful! :appl:

I'm so glad you'll be taking a substantial amount off your debt and that you and your DH worked together on this plan! Finances can be a source of comfort or cause great stress. Couples need to be on the same page about what works for them.

Obviously, I don't know you, but I'm always happy to hear about people getting onto more stable financial ground. Think about the extra money you'll have when this debt is paid off! :))

Thanks for providing the update!

:wavey:
Thanks December! I'm thinking the money we won't have to put towards a credit card should definitely go to a new bling account ;-)
 

december-fire

Ideal_Rock
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StephanieLynn,

You are a wise woman! :lol:

Tell your husband he is a lucky man.
 
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