Covid saving vs debt

[Shelly F - Ohio]

My job is fine but hubby's may not be if school's don't reopen in the fall. We have a really nice cushion of cash that I am hesitant to spend but on the other hand I could payoff the last credit card. The downside is that it would drain about half the cash in the account.

We are in the strange situation where the house and cars are paid for but have credit card debt.

If it would drain 1/2 of your reserve cash I would not do it. Especially since you don't know what will happen in the fall for your DH job. What you could do is pay a little extra on it. That will help slowly bring down that debt but still leave you with money in the bank and if you can't pay the extra then you don't have too. This way you will be able to maintain the money in the bank and if something does happen in the fall and you are in a financial pinch you will have the reserve money in the bank to pay your bills and keep you from missing a payment or damaging your credit.

 

[tinkerone]

My job is fine but hubby's may not be if school's don't reopen in the fall. We have a really nice cushion of cash that I am hesitant to spend but on the other hand I could payoff the last credit card. The downside is that it would drain about half the cash in the account.

We are in the strange situation where the house and cars are paid for but have credit card debt.

If it would drain 1/2 of your reserve cash I would not do it. Especially since you don't know what will happen in the fall for your DH job. What you could do is pay a little extra on it. That will help slowly bring down that debt but still leave you with money in the bank and if you can't pay the extra then you don't have too. This way you will be able to maintain the money in the bank and if something does happen in the fall and you are in a financial pinch you will have the reserve money in the bank to pay your bills and keep you from missing a payment or damaging your credit.

I would pay off the CC now if you have the money however do not close the CC account. Leave it open but unused. Then think of it this way. You will no longer be paying the interest on that 'loan' and the interest is going to be much more than any interest you can make on the money in a savings at the moment. You also have between now, after paying off the CC, and when your husband should be going back to work to add to the savings account and building it back up. Keep in mind you will no longer have the CC to make payments on, that money can go directly into the account. Push come to shove and you need money because husband doesn't get to go right back to work then you have the CC in which you could make purchases with or advance cash from. It's there if you need it and there is a very good possibility you won't.
Why pay interest on a loan that you don't have to? Interest rates on CC are not cheap. Having said all that though, keep in mind that you really need to have a six month cushion to fall back on and you only said you have a nice cushion and didn't clarify what that cushion was or if you had your six months also set aside.

ETA-JMO and how I look at things. Not everyone's idea of what to do but I'm all about saving a dollar if I can.

 

[ClapYourHands]

My job is fine but hubby's may not be if school's don't reopen in the fall. We have a really nice cushion of cash that I am hesitant to spend but on the other hand I could payoff the last credit card. The downside is that it would drain about half the cash in the account.

We are in the strange situation where the house and cars are paid for but have credit card debt.

Depending on the amount of debt, you might want to look into a home equity line of credit and pay off the CC debt. The rates for HELOC are well below CC interest rates, and with no mortgage, you have equity to tap. That way you reduce the interest you pay, keep credit available if needed, and keep your cash reserves.

 

[Starport Seven-Five]

No changes really. We have an emergency savings that is funded and the only debt we have is low interest (a mortgage and 2 car payments that could be paid off tomorrow without touching emergency savings).

TBH the first round of stimulus just cemented in our minds how good of shape we're in. If a second wave flares up we will likely see another round of stimulus and unemployment benefits increased.

 

[NKHarris329]

The right answer for you is going to depend on a lot of factors. I definitely recommend having at least a few month's expenses in your savings before really focusing on paying down debt. Dave Ramsey baby step #1 is $1000 in savings, I don't think that is enough in the current economy. I'd save at least 3 months basic expenses (food, shelter, utilities, transportation, + a little extra), then start aggressively paying down debt.

There are two thoughts on what debt to pay down first, Smallest Balance first or Highest Interest first. Both are valid though there are pros and cons to both. It's a big rush to pay something off and you get that sooner by focusing on smaller balances first. You do end up paying more if you hold on to larger interest rate debts for longer periods of time, so if saving your pennies is your goal focus on high interest debts. Personally, I think a combination works best. Pick a threshold, any debts under that $ amount get paid off with the balance being the priority, any debt above that $ amount gets paid off with interest being the priority.

 

[Judique]

Depending on the amount of debt, you might want to look into a home equity line of credit and pay off the CC debt. The rates for HELOC are well below CC interest rates, and with no mortgage, you have equity to tap. That way you reduce the interest you pay, keep credit available if needed, and keep your cash reserves.

I would never turn unsecured debt into secured debt. It looks enticing but could turn into a trap. Instead, I would look for a 0 interest card or check ones I already have and do a transfer, while continuing to pay as much as possible to get rid of the card debt.

 

[trenty]

As a retired banker I will give you my pre-retirement advice. It's the same no matter what, under any circumstance.
Always have six months of expenses in a savings account that is available at any time, meaning not locked in. Include any thing that needs to be paid in the 'expenses'. Mortgage or rent, car, water, electric, anything at all that you would have to keep if all your income were to dry up. You could always give up cable, cell and internet if push came to shove so you don't need to include that if you don't wish but make sure it's a true accounting of what you would need.
Then have some savings that you could use on a daily basis that is 'play money'. Have that available so that your not tempted to use your 'six month' savings when you want to go to a movie or dinner some night.
Then pay off your debt. Pay off the debt with the smallest amount owing no matter the interest rates. Some people will not agree with this but if you do it this way you will have one less bill to pay and then can apply that amount to your next smallest bill and so on.
This is the order I would have advised for anyone asking me but it may not fit your needs. Everyone is different and this is just an outline, suggestions. The six month savings though should be something everyone has on hand although it is not always possible for all.

Great advice! I would like to add - keep a written budget. Knowing what you have each month and what you need and want to spend on helps with savings and debt pay-off.

 

[goofytinkerbell]

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