Increase savings or pay down debt?

[Anonymous]

@pfarro1    Yes, it is a no brainer, lol. I think I just needed encouragement to know that I was making the right decision. My employer does match, but I don't know the precertage off the top of my head. 

[Anonymous]

Thanks for this thread. Usually when you read something like this its an automatic, PAY THE DEBT DOWN. Your situation with low rates has been interesting. I actually got out calculator and paper and pen to play with some numbers. Which is always good, cuz it makes me think of what I can do better or differently. Plus the fact that you arent really up to your ears in it and just balancing on a knife edge shows how making changes before they become serious problems can help. Best of luck in whatever plan you execute. 

[Anonymous]

@pfarro1 You are welcome! It took a lot of courage to write this post, but I just felt desperate. Myfico is a wealth of info with a lot of knowledgeable people who frequent it, so I figured why not. Thank you again!

[Anonymous]

My 2 cents:

All other things being equal, pay down debt. You can think of paying down debt as an investment that has a guaranteed rate of return equal to your interest rate. If you are paying 4% interest, paying down debt is equivalent to a tax-free guaranteed bond that pays 4%. I call it tax free because you don't get taxed on not having had to pay interest..(If you are writing off the interest as an expense that might change the math.) Such a good deal is unheard of, the only way to get such a fantastic investment product is to pay down debt  

Sometimes though all other things are not equal. If your company is offering to match your investment then the rate on return on THAT is huge. Say they put down $1 for every $2 you invest. Right out of the gate that is a 50% return on the money you put down, which clearly beats even the fantastic return you get paying down debt.

So, if there is free money on the table through some matching contribution, take the free money. Then pay down debt with what you have left.

[Anonymous]

As for what debt to pay down -- even though it may not look like it has the highest interest rate, I'd pay down the credit card debt first. You may get away with a balance transfer that keeps the interest rate low when your current deal expires, but that's not a sure thing, and then you could see the interest rate on that skyrocket. 

Some people carry debt on credit cards at 0% or very low rates for a couple of years, they stay ahead of the game by kiting the balanace from one card to another as their low interest periods expire. However, the credit card companies know all about that and at some point if they become uncomfortable about the individuals finances the 0% balance transfer offer won't be available and the debt will go to some ludicrously high interest rate. 

The other loans are backed up by assets and so you'll get a lower rate on them. I'd still pay those off before adding to savings, UNLESS you get the matching deal.

[Anonymous]

Increase to have an emergency fund in liquid cash but after that the next animal is becoming debt free. You make make interest in savings but will pay much more out on debt.

[Anonymous]

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@Anonymous wrote:

Hi All, longtime lurker and obviously 1st post, but I am looking for some guidance.

Do I work on building up my savings/emergency fund or pay down debt? Starting in February I will have an additional $200-300 a month that I can either put in savings or pay down debt. I go back and forth and can’t seem to stick to one decision. What would you do?

Savings: $1682

Debts: see below

1. 401K Loan: 10,158.58  3.5%  5 years  9/21/2014  92.92 Bi-Weekly
2. Car Loans:      1). 6871.35    2.49%  60 Months 12/14 (1st payment) 156.90 (monthly)

                                 2). 9953.81    2.49%  60 Months 12/14 (1st payment) 182.47 (monthly)

                                *refinanced both vehicles with PSECU 12/14

1. Credit Cards:

                    1.)  PSECU (20,000) – 5301.61  2.9% until 12/15 ( Completed balance transfer 11/14).

                         *Minimum payment is 2% of outstanding balance.

                          *PSECU  =  PSL/Visa Combo           

                    2.) Barclay’s Arrival (2500) -  1424.03   0% until 6/16    18.99% after. (been paying $50 a month. Min is $20).

I have multiple other cards that all report a zero balance. If I use them I PIF.  Total available credit is: 82,100. This amount does not include the “perceived’ additional 20,000 from the PSL side of the PSECU combo. I also have student loans which at this time my payment is $118 a month with a term of forever. I’m not ready to tackle that giant yet. No mortgage. We rent. No prior BK’s. No current derogs. No collections. Scores across all 3 are 700-725.

I was contemplating BT’g the 401K loan to the PSECU visa (2.9% until 12/16), but I don’t want to spook any of my creditors out by now having a 15,000 plus balance reporting. I’ve been banking with PSECU for years. They are my primary bank, but the PSECU 20/20 combo is new for me. I originally had a limit of $6500 on the visa alone. As of December, I now have the combo. Doing the BT would free up more money in my bi-weekly pay and I could also contribute more to the 401K. At this time, I’m only contributing 1% every two weeks.  I’ve also thought about paying down one of the cars a little more quickly. Car 1 is the car my husband uses for work. He has a 3 hour commute with no plans to change jobs as he can retire in less than seven years! It is a 2008 Yaris with at least 160,000 miles on it now, if not more. I’m not sure how much longer we have with this car before we have to get a new one. My husband’s credit is not so good right now and would not be able to get an auto loan and if he would it would be at an exorbitant interest rate and high monthly payment. Help! Lol, what do I do with this extra 200-300$ a month?

Thanks for your input ----- RG

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Forget everything else, denfinitely pay off your CC debt first before your offer expires.