Need advice...possible layoff...save or pay extra on debt?

[airplane]

I would pay the minimums on all your bills while getting a savings account with at least $1000 dollars... once you do that, pay the minimums on all your bills except the smallest one so you can get that one paid off real fast, then continue on with the next highest bill putting all your money from the first now paid off bill towards the second... this way you have successes by eliminating smaller debts which will keep your drive going to become debt free... I would do this with all your bills, and not just CC's...

(all above stolen from Dave Ramsey's book)

Just curious, why does DR only recommend 1K in savings?

 

[PlaneJoy1]

I would not change an unsecured loan (credit cards) to a secured loan (your house!). That just doesn't add up. If you have good credit, find a no or low interest offer and move your debt there. You will pay it off quicker than a high interest card. Just pay attention to the "mice type" agreement and you'll be okay.

Good luck!

 

[DisneyGirl4188]

Just curious, why does DR only recommend 1K in savings?

He recommends that as a start. He says you need to have at least $1000 in case of an emergency. You need to pay off the CC, then increase the savings.

 

[Chicago526]

He recommends that as a start. He says you need to have at least $1000 in case of an emergency. You need to pay off the CC, then increase the savings.

I've read DR. Personally, I think $1000 is too low. I feel it should be $2,000, unless a person just can't save up that much in a relatively short amount of time. $2,000 will cover almost ANY emergency situation short of a true disaster. If I had had just $1,000, I would have had several emergencies that I still would have needed to charge (at least some of it) on my credit card because the bill was more than that! This is especially true for car repairs and insurance deductables.

 

[Am_I_There_Yet]

I've read DR. Personally, I think $1000 is too low. I feel it should be $2,000, unless a person just can't save up that much in a relatively short amount of time. $2,000 will cover almost ANY emergency situation short of a true disaster. If I had had just $1,000, I would have had several emergencies that I still would have needed to charge (at least some of it) on my credit card because the bill was more than that! This is especially true for car repairs and insurance deductables.

My insurance deductible on my car is $1k and my house is $1,700! I would think you'd need at least that much (the larger of the two) in savings.

The rule of thumb I've always heard, is three months salary if you're employed by someone other than yourself, and six months if you're self-employed.

 

[Toby'sFriend]

The rule of thumb I've always heard, is three months salary if you're employed by someone other than yourself, and six months if you're self-employed.

Dave Ramsey also recommends that but it is a later step in his plan. The first Baby Emergency fund is meant to cover things like your car breaking down or your kid cutting his head open and needing stitches. Most people starting the plan have nothing in short term savings to cover events such as these and they are putting those expenses onto their credit cards. The first Emergency fund is put into place to help the person stop using their cards.

Later in the plan, after the credit cards etc are paid off, then Dave Ramsey suggests building a larger fund to cover possible job loss etc.

I agree about $1,000 being on the low side now. Financial Peace was published many many years ago, $1,000 could cover most Car Breakdowns etc back then easily --- now not so much.

 

[disneysteve]

Just curious, why does DR only recommend 1K in savings?

I think a $1,000 emergency fund is just fine, as long as you don't earn more than $3,600/year. Otherwise, it isn't anywhere near close to enough. If you get sick, lose your job, seperate from your spouse, etc., $1,000 won't get you very far. Heck, I took my car in for what I thought would be routine service last month and it ended up costing me close to $1,000.

Your emergency fund needs to be a bare minimum of 3 months of living expenses and ideally 6 months or more. For the OP who is preparing for the possibility of losing her job, the longer the better.

I haven't read DR's books, though I've read lots of thread here about them. I do believe he sets that $1,000 goal as just a starting point and to continue to build from there. But that you shouldn't start attacking your debt until you have at least put aside that $1,000. If that isn't accurate, please correct me.

 

[Am_I_There_Yet]

Dave Ramsey also recommends that but it is a later step in his plan. The first Baby Emergency fund is meant to cover things like your car breaking down or your kid cutting his head open and needing stitches. Most people starting the plan have nothing in short term savings to cover events such as these and they are putting those expenses onto their credit cards. The first Emergency fund is put into place to help the person stop using their cards.

Who is this guy? I've never heard of him before.

My ex-DH purchased some tapes that some man put out, telling people how to live debt-free. He paid $600 for them and the cynic that I am, told him that's how that man got debt-free. But would you know, my ex followed the plan and did it in a few years? He's offered the tapes to me, but I honestly keep forgetting about them.

I'm just wondering if it's the same man...

 

[Toby'sFriend]

I haven't read DR's books, though I've read lots of thread here about them. I do believe he sets that $1,000 goal as just a starting point and to continue to build from there. But that you shouldn't start attacking your debt until you have at least put aside that $1,000. If that isn't accurate, please correct me.

no that is exactly correct. The $1,000 is just the beginning step.

I don't think Dave Ramsey has tapes out, but I could be wrong. He does have several products that he sells and he has been around for a long time. You don't need to spend money to learn about him though, all you really need though is a copy of one of his books...readily availabe at your library. If you want to spend a small amount of money there are used copies all over the place.

You can also listen to his radio show over the internet for free, either live or you can listen to archives of past shows..

http://www.daveramsey.com/radio/home/index.cfm?strMode=listen

 

[luvthatdisney]

Lady Belle~

I'm glad you have come up with a plan that you feel comfortable with. We too have not stopped our snowball (yet!) since I was laid off. DH has been working alot of OT - because he has to! So that has helped greatly. I have put my severance money in savings and I am not going to touch it except when our income falls short of our expenses - only about $400 a month I would think so that money should last a while. If DH keeps having to work OT I might not have to use it at all - just knowing it is there is a great comfort in this time of uncertanty.

We are determined not to use credit anymore - so far its been working!!

 

[nbodyhome]

Definitely pay most of that on your credit cards - and put a small amount in savings, so you have something to fall back on before the credit cards.

Cut back on what you can as well. Maybe on cable, cell phones, etc. - and put that away too.

Denise

 

[MrsPete]

Chip away at the credit card bills; those are DEFINITE problems. Even if you are laid off, having a lower balance (or hopefully zero) will help you.
The lay-off is a MAYBE.

 

[dvcgirl]

Don't change your plan. Work on paying down the CC debt and keep a close eye on jobs in your field in case you need to find one quickly. To get anywhere financially, the CC debt has to go and you need to learn to live within your means. Best of luck to you!

 

[Lady Belle]

Don't change your plan. Work on paying down the CC debt and keep a close eye on jobs in your field in case you need to find one quickly. To get anywhere financially, the CC debt has to go and you need to learn to live within your means. Best of luck to you!

Already there! We locked away the CC's in October and haven't charged a dime since! Paid cash for Christmas (not that we spent much on presents anway ), recent auto repairs, and begining rehab on our upstairs bathroom (which was 80% nessesary, some of the fixtures were leaking. 20% of it was because I just couldn't stand looking at the world's ugliest wall paper anymore! ). All while paying 25% of our take home income to the CC's. Most of the debt is from our wedding to begin with, prior to that, while our purchasing decisions weren't always very wise, we did live within our means more often than not (we weren't saving, but we didn't charge up a storm, either). If it weren't for all this lay-off talk recently, I'd be happy as a clam with our financial picture.

It's funny though, since I locked up the cards, I haven't missed them! In the past I always thought "I MUST have a CC on me at all times, what if there is an emergency?" But you know what? In 10 years of having a CC, that emergency has NEVER happened! I finally figured out, that since my bank has 24 hour phone banking, that I can just transfer money from savings to my checking, then charge any emergency to my debit card. So, I don't need that "emergency CC" anymore tempting me when I see my favorite store is having a sale! And I have enough will power not to use savings for anything other than true emergencies.

Anyway, thank you to all for your advice. I think our current buget will meet our needs, even if the worst happens and I am out of work for a while. Afterall, I will get unemployment for a time, between that and our savings, we should be okay until I can find work. It won't be ideal, but we won't starve!

 

[disneysteve]

I finally figured out, that since my bank has 24 hour phone banking, that I can just transfer money from savings to my checking, then charge any emergency to my debit card.

I'd be careful about this. Even though you can enter a transaction at any time, it doesn't mean it is processed any time. Most likely, and check with your bank, the transaction is processed on the next business day. So if you make a transfer on the weekend, it may not hit your account until Monday so you could be in trouble if you are depending on your debit card for some urgent payment.