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

[Anonymous]

I don't believe in using credit for anything other than rewards, 0% and arbitrage.  The best pay here is pay off cards ASAP.  Then save money for emergancies.  Then start using cards again only when he can PIF all the time (assuming no 0% plays).

But if the question is which is better, paying 20%? interest while building an emergency fund or paying down the cards knowing you can use the card if need be, then I think the latter is clearly better and should lead to a quicker recovery.

[Anonymous]

Ok - if you are that risk averse.  I suggest going the other way and getting it paid off ASAP and start to collect interest rather than pay it.  But I suppose there are certain senerios where if ABC and D all happen you could get screwed.  I just prefer to riske that instead of paying x% interest which would personally cause me great annoyance and displeasure.

[Anonymous]

Note - first response in re Fender - second stgnov05 - still learning how to post here

[Anonymous]

Each persons current situation is necessary to answer this highly debatable question.  If your income is guaranteed then by all means pay down that debt, and like the poster above said, refrain from using credit until you have a 0 balance.  I believe having easy access to cash that will sustain you for 3-6 months is necessary in this economy and any economy really.  It should certainly be a high priority, I would make it the #1 priority, but thats your call.

Also note that the OP said "recent news of overall lay offs makes me wonder if i should preserve the cash". Obviously this person does not have guaranteed income, and fears job loss in the future.  Pay the minimum, or twice the minimum, and at the same time I would certainly advise stashing some cash.  You cant even count on your company offering a decent severence package these days, I saw a local company go from up to 1 year package, to up to 6 months, to 2 weeks.  And you know you cant count on your 15k credit line staying 15k, and can you count on unemployment, somewhere around $10 an hour?

Message Edited by fender on 01-27-2009 11:30 AM

[oracles]

Again I have to agree with fender.

Say you have 10k in cc debt. You continue to pay down ASAP, and not having any savings. 6 months down the line you have ( I hope not) lost your job and and you still have 5k left on your credit cards. Now you don't have any savings, no extra income. Where are you going to get the money to pay even the minimums on the credit cards. We are not even speaking about your mortgage/rent, money to look for another job, food. Why, because you want to pay your credit cards first and not have money in the event you lose your job.

Have, at least, the minimum 3 months in your savings account and then proceed to pay off your CCs ASAP.

A roof over your head and food in your stomach is more important than risking paying off your credit cards to companies that don't have your best interest first. So you may have to pay more for interest in the months you are saving. How much is your life worth to you to have this money saved so you can eat and be sheltered.

Save up first, then pay off ASAP

[Anonymous]

Dave Ramsey says:

Step 1- Save 1000 for starter fund
Step 2- Pay off all debt
Step 3- complete emergency fund

[Anonymous]

In re Oracles response - So instead of paying down the card from 10K to 5K you would bank the money.  Fine, then 6 months down the road in this hypethetical you lose your job.  You still have 10K in debt at high interest and higher minimums.  And you only have 5K in savings.  Quite frankly I don't see how that is any better than having 1K in savings with only 5.8K in debt (.2 in interest savings).  2 months after losing your job in either senerio you are still going to be at the same place - all savings spent and 10K+ in debt.  Its just in my senerio, you give yourself the chance to get away from this prediciment faster and cheaper and possible opening up more credit down the road, which you will hopefully never touch.

I can see how you can argue the other side though, I just think my way is better.  Either way, keeping the job or replacing the income is really the most important thing. 

[Anonymous]

That baffoon would also say:

Step 4 - Dont worry about your credit scores, try to be like me and have a 0 score.

Step 5 - Dont use credit cards EVER, (except to buy my books online).

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@Anonymous wrote:
Dave Ramsey says:

Step 1- Save 1000 for starter fund
Step 2- Pay off all debt
Step 3- complete emergency fund

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[Anonymous]

I had a friend who would have agreed with this post 6 months ago, then he lost his job.  He went from paying several times the minium on his AMEX with a 8000 balance, to using the cards to pay his bills (he only has 2 CC, one AMEX blue revolving and one charge, total credit limit on revolving is 18k). 

BAM, CLD to $9k.  He now has no cash, no credit, and is in quite the jam.  This is the problem with most americans, they rely soely on credit to float them through bad times.  If he had started saving a year ago, and payed just the minimum until he had enough cash to sustain him a few months, he wouldnt be moving his family in with his parents.

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@Anonymous wrote:

In re Oracles response - So instead of paying down the card from 10K to 5K you would bank the money.  Fine, then 6 months down the road in this hypethetical you lose your job.  You still have 10K in debt at high interest and higher minimums.  And you only have 5K in savings.  Quite frankly I don't see how that is any better than having 1K in savings with only 5.8K in debt (.2 in interest savings).  2 months after losing your job in either senerio you are still going to be at the same place - all savings spent and 10K+ in debt.  Its just in my senerio, you give yourself the chance to get away from this prediciment faster and cheaper and possible opening up more credit down the road, which you will hopefully never touch.

I can see how you can argue the other side though, I just think my way is better.  Either way, keeping the job or replacing the income is really the most important thing. 

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[oracles]

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@Anonymous wrote:

In re Oracles response - So instead of paying down the card from 10K to 5K you would bank the money.  Fine, then 6 months down the road in this hypethetical you lose your job.  You still have 10K in debt at high interest and higher minimums.  And you only have 5K in savings.  Quite frankly I don't see how that is any better than having 1K in savings with only 5.8K in debt (.2 in interest savings).  2 months after losing your job in either senerio you are still going to be at the same place - all savings spent and 10K+ in debt.  Its just in my senerio, you give yourself the chance to get away from this prediciment faster and cheaper and possible opening up more credit down the road, which you will hopefully never touch.

I can see how you can argue the other side though, I just think my way is better.  Either way, keeping the job or replacing the income is really the most important thing. 

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Hi credit, i think this is a great debate and i am glad we can agree to disagree.

Two civilized individuals lol

That being said, i just want to respond to a statement you mentioned. 

You said --Quite frankly I don't see how that is any better than having 1K in savings with only 5.8K in debt (.2 in interest savings). 

The difference is if you have only 1k in savings and you need 1200 for rent, 100 to get on the bus to take your butt for job interviews and lets be conservative, you need $150 dollars for food to eat for the month. Where is the money? All because you wanted to pay the ccc first and forget you may need some money to live for the necessities. The ccc and your bills will still be there but you wont if you dont have food to eat and a roof over your head. God forbid if it should stretch into 2,3,4 months of no employment. Unemployment checks can cover so much.

Take care of you first because no one else will and then pay your cc's.

I just dont think you should risk your basic necessity of living just to pay your cc's off first.

If you say to them, hey i paid you first but now i lost my job can you please let me have some of that money back because i have no money to eat right now, what do you think they will say?

Yes we will give you money because you paid us first, or do you think they will kick you to the curb and say thanks for paying us off but you have to deal with your own problem.

Again, take care of you first, because no one else will.