Which Option is better in this economy? Pay off Cards or Preserve Cash

[Anonymous]

Hello All

I currently have 7000 in debt out of 15000 dollars total credit. I have been doing good to reduce my debt consistently by paying 5-6 times of minimum payments but recent news of overall lay offs makes me wonder if i should preserve the cash and make twice of minimum I owe to CC.

Any advice?

Thanks

[Creditaddict]

Suze Orman says pay debt off... but I think if you feel you have a chance of loosing your job than she would say get an 8 month emergency fund.

[Anonymous]

How much are you paying in interest? You may be losing more cash, over the long-term, by paying more interest to your CCCs.

If you're laid off you'll still owe, and you'll have to dip into your cash reserves to pay it. I say, pay it off, or pay it down significantly, ASAP, if you can, and doing so won't empty your cash reserves. Then, start saving all the money that you would have paid to the credit card companies.

If you've zero or very low interest rates, then keep doing what you're doing now.

That's just my personal opinion. You'll probably get quite a few others that may make more sense, or be more in line with financial goals and plans.

[oracles]

It really depends on your situation. If you feel that your job may be in jeopardy, then I would say to pay the minimums and save at least 5 months of cash. If you pay your credit cards (however you still have balances) and have no money left over and then you lose your job, you still have to continue to pay the minimums. If you have no money to pay the minimums, then you are in a really difficult position.

I always say, plan for an emergency. Always have a plan B just in case you lose your job. You need to make sure you have enough to continue to pay your bills until you find a new job.

[marty56]

Never a good reason to carry any credit card debt.  Most FC's smack poeple who have credit card debt and money in savings.  Having CC debt makes you a better traget for AA and CLD's as if credit card companies needed a reason these days to do it. 

[Anonymous]

Pay the CC debt and its not even close.  Think about it this way - you have 7K in debt to pay and would like say 7K in emergency money.  You need to save 14K + interest to make this happen.  If you first focus on the debt the + interest piece will be far less then if you do both at the same time or worse do the emergancy fund first.

Pay off the card, which will get your score to rise.  If your score gets better, app for a better card with a lower rate and should you then lose your job you can use that card with a lower rate.

[Anonymous]

I would stash cash, at least enough to live on for 6 months, and then pay down your debt.  Many will argue and say "buy you will be paying interest while you stash your cash, blah blah...".  The fact is, you dont know what is going to happen to you this year.  Will you lose your job due to the economy?  Will your health deteriorate?  Cash is in the bank, its there when you need it.  Your credit card on the other hand, shouldnt be used for emergencys that will require carrying a balance, at least not in this recession.  And if you dont stash cash, and something happens to you, think of the interest you will be paying on that credit your borrowing, and you have no income at the moment, so look at the fees your racking up.

Always have at LEAST 3 months living expences in cold hard cash.  This can and has been debated and this ideal seems to win out the most.

[Anonymous]

Fender - I am sorry - but that is ridiculous.  He is already carrying a balance.  Pay down the card and get rid of the current balance and save the interest.  If an emergency happens, it happens.  The balance will go right back on the card and you will pay interest.  But while that might happen and he may pay interest if he has an emergency he will definately pay interest if does not pay down the card now.

The minimum on a 7K card is going ot be $140 (may vary).  Fine, hold $700 - $1000 to cover minimums for a few months should you need it, but then pay down ASAP. 

Also once you get your balance down to 2K or so, app for a new card in case an emergency does happen.

[Anonymous]

If you lose your job the money in your savings will be much more valuable than having your CC PIF.

Look at it this way, If you PIF your CCC, and by doing so deplete your savings, and then lose your job, and then have your CCC CLD or take AA and close your account (who knows what could happen in the economic climate right now), you're going to be stuck with no money AND no credit.

I would agree that it's better to PIF if you have a solid and secure job. However, if there's a chance you could be losing your source of income, you're going to need what you have put back to pay the bills until you can secure another job, or your employment from current job returns.

Basically, I don't have a lot of faith in the credit industry right now, and the chance that you could PIF only to watch your CCC close the account or significantly decrease your available credit is too great to justify paying them off when your job is at risk.

Make the minimum monthly payments until you figure out exactly what’s going to happen where you work. Then, after things settle, pay off those cards.

[Anonymous]

---

@Anonymous wrote:

Fender - I am sorry - but that is ridiculous.  He is already carrying a balance.  Pay down the card and get rid of the current balance and save the interest.  If an emergency happens, it happens.  The balance will go right back on the card and you will pay interest.  But while that might happen and he may pay interest if he has an emergency he will definately pay interest if does not pay down the card now.

The minimum on a 7K card is going ot be $140 (may vary).  Fine, hold $700 - $1000 to cover minimums for a few months should you need it, but then pay down ASAP. 

Also once you get your balance down to 2K or so, app for a new card in case an emergency does happen.

---

So you suggest applying for more credit for emergencys?  Just keep the cycle of debt going?  I disagree, break the cycle, also learn to live within your means to keep the debt from accumulating in the first place (unless this was due to an emergency).  Get your cash saved now, benefit early from the interest you will never pay again!