debt question - wwyd

[mousefanmichelle]

I don't know much about their finances truthfully - that's their business. I have enough stress of my own LOL!!!

Anyway I "think" their debt was accumulated by just not saying NO to stuff. If they didn't have the $$ they charged it. As far as I know it wasn't built up by any emergencies. They probably make enough if they would learn to live within their means but they are always eating out, doing whatever. If they cut back and used cash only things might be different. They are worried about their jobs - because everyone in Michigan is worried I think. I work at a hospital and I am worried. You never know what could happen kwim?

Thanks for all of your replies!

 

[Trixie15]

I'd keep $1000 in savings for true emergencies, pay off $9000 in CC debt and then start ramping up the savings once the CC debit is gone. If you put it all on the CC debt though, the tendency is to just go out and spend more and start racking up the CC debit again...

I agree with this!

 

[allyphoe]

If they are still spending way too much on wants instead of needs, my fear is that if they use all of the $10k to pay off the CC's, they run it back up again in just a few months.

OTOH if that's the case, even if they put it all in savings, it's going to be burning a hole in their pocket there. There's no amount of money that's enough for people who choose to live beyond their means, until the time that they decide to live within their means. Look at all the multi-millionaire lottery winners who are in bankruptcy within a few years of winning.

I vote to pay off the credit cards. At least they'll be starting off even.

 

[pyrxtc]

The smart thing to do is pay off the debt, because that goes up SIGNIFICANTLY if it's on a credit card (unless they're in a 0% period). If they have no money in savings, it would pay to keep a little bit in savings ($1000-$2000) in case of emergency, but the rest I'd use for the debt.

I would do the same. They will pay more in interest on the CC than they will earn to build up their credit. Besides if anything happened and they boht or even one lost thier jobs and had to find a new one, people who are hiring will look at thier credit and they could lose job opportunities that way.

 

[Darcy03231]

I'm going to be the voice of dissent here. If they pay off the cc debt there is a chance the cc company will either lower their credit line or close the card on them, both of which have been happening to people. If either or both of them lose their jobs they may not be able to access the credit line and will need the money. I would put the $10k in savings and continue to pay on the cc. Once the economy stablizes and they know their jobs are secure I would then use most of the savings to pay off the cc debt and keep a cushion of a couple of thousand.

 

[chobie]

I'm going to be the voice of dissent here. If they pay off the cc debt there is a chance the cc company will either lower their credit line or close the card on them, both of which have been happening to people. If either or both of them lose their jobs they may not be able to access the credit line and will need the money. I would put the $10k in savings and continue to pay on the cc. Once the economy stablizes and they know their jobs are secure I would then use most of the savings to pay off the cc debt and keep a cushion of a couple of thousand.

ITA. If they are living pay check to pay check then they need that money if one of them loses their job.

 

[*disgal*]

If they are living paycheck to paycheck, they are screwed no matter what they do if they lose their jobs.

They need to keep about $1000 and pay the rest to the CC. BUT FIRST, they need to rework the budget and get rid of everything they can to make that budget work. They need to be putting something in savings every paycheck. If they are not doing this, they will get into trouble when either: the CC is at it's limit, or the $10,000 is gone. Either way, if you are spending more or all that you make without any savings and you lose your job.........your done. Doesn't matter what you did with the 10 grand.

 

[asoko]

I got this from Suzi Orman when she was on Oprah. She says to have 8 mos reserves, stop using credit cards pay cash, pay minimum on cards. After 8 mos reserves are saved then pay down as you can. She says because of the economy/layoffs people can't be sure of income coming in and it is taking average of at least 8 mos to find a new job. So people need the cushion.

 

[Shelli_5]

I agree with those who suggested that they put $5000 towards their credit cards and $5000 in savings. With the reduced principal on the credit cards, maybe they can scrimp & save and pay the remainder off quickly.

 

[DisneyMomOK]

There are no gift taxes, so this is all theirs. The interest rates on cd's right now are running about 1.5%, not much, compared to the interest rate on the cc's. I would follow previous advice and save a small portion, $1000 to $1500, and use the rest to pay off debt. The remaining debt should be doable rather quickly and then start saving with the money freed by the lack of debt. Which ever way they choose to go, I wish them the best. Today's financial roads are tough to navigate.

 

[CLR4321]

I would pay off the entire credit card debt, then put that money that was being used to pay the credit card bills into savings. Having $10,000 of credit card debt would be costing you a chunk of finance charges every month, especially if the APR is high. It costs people a lot of money to carry credit card debts. And with the new credit card laws, you never know if you APR will end up going up.

 

[Green Tea]

I would pay off the credit card. If you put the money into savings, any miniscule amount you earn in interest is far less than the accumulating interest on the credit card bill.

 

[johde]

For me, it would depend on that interest rate you are paying on the credit card. The higher the interest rate, the more I would pay toward it. For example, if it is 25% or over I would put all of it towards the credit card. If the rate is 20% - 25% $9,000 to credit card, $1,000 Savings; 10%-20%, $7,000 to credit card, $3,000 Savings. Under 10% $5,000 Credit Card, $5,000 Savings.

 

[koima]

I'd pay off all the debt and then allocate the monthly payment amount to savings. In an emergency you could always access the credit card again and in the meantime you are saving all that interest. If no emergencies arise, then you are much better off.

The big gamble right now is that the credit card could be involuntarily terminated.

That's what I'd do. If you're paying a few hundred a month in credit card bills, you could put that money into savings and have a nice savings cushion in no time.