Paying off credit cards versus saving money.

[misscity]

Hi all,

I'm sure there are many of us that find ourselves in this dilemma. Due to some emergencies in the past 6 months, I have depleted my savings account. I subsequently charged up about $800 on my AMX credit card. I had another Visa credit card that has $1200 from car repairs and medical expenses. So i'm now $2000 in the hole and have 0 dollars in savings. Clearly, the reason why I racked up $800 on the AMX was because I didn't have enough cash saved up. So the challenge i'm facing now is how to adequately save enough cash to avoid future credit card spending but at the same time pay off this debt. I don't make enough money so I could use some guidance. Here are the details:

Take home pay per month after 401k and medical/dental: $2800
Fixed exp (rent, car payment, cell, gym, utilities/internet, renters insurance): $1720

I'm left with a little over a $1000. I keep $60 a week in cash and this INCLUDES groceries (shopping for 1, I can make this happen). I usually pay the cards $150. Let's keep $100 for miscellaneous expenses so I have $500 to work with. How would you handle splitting that up between savings, AMX and Visa?

I also want to note that my fixed expenses cannot be changed for at least a year when my car is paid off and I can move out of this apartment. So I have no room to change anything from that $1720. I do not want to cancel my gym membership ($50) and unfortunately can't move yet! But it's not like I could as I have no cash for a security deposit!

[HistoryChick]

-Does your apartment complex have a workout center that you can use instead?

-I'm a workout freak so I can sympathize with not wanting to give up your gym, but you can get by with $80 set of adjustable weights and the open road.

-Is there class there you love well enough to teach? You may get free membership that way.

[misscity]

thanks for your response! my building unfortunately does not have a gym..and due to a foot injury I can't run outside. I can manage to get cardio on an elliptical at the gym with aggravating my foot more.

Since I dont go out, go to the movies, go to concerts or do anything else that would be fun, I'm Ok with spending $50 a month my gym membership. Most gyms in my neighborhood are about $100 a month so I got a deal!

[snafu]

What can you do to increase income? Could you get a room mate to help with apt. costs? Find PT work? I'd focus on clearing high interest debt while setting aside a modest $ 50. per pay towards EF.

[disneysteve]

Your situation really isn't bad at all. You have $2,000 in debt but you have $600/month in surplus income including what you are calling miscellaneous money. That means that you could easily be debt-free in 4 months if you hunker down and don't spend anything beyond the bare necessities.

Certainly, having some money set aside for emergencies and miscellaneous stuff is a good idea even in the short term. So if you set aside $100 for savings and miscellaneous spending, that still has you debt-free in 4 months. I don't see any problem here.

[ActYourWage]

How much is your rent? How much is your car payment? And how much is your car worth? Check Kelly Blue Book for that.

I agree with DS, your situation is not bad, but you don't want things like this to happen again.

[disneysteve]

I agree with DS, your situation is not bad, but you don't want things like this to happen again.

True. Once you have paid off the debt - 4 months from now - you need to continue to put $500/month into savings to build your EF. If your monthly expenses are roughly $2,200, an 8-month EF would be $17,600 which you could have fully funded within 3 years. If you are able to trim expenses by moving, paying off your car, etc., the target amount gets smaller and you'll have it fully funded even sooner. Just keep at it and you'll be there in no time.

[TheMoneyMan-Leo]

All good ideas here. Absolutely agree with DS...MANY are in much deeper debt.

Personally I'd put the vast majority of your $500 a month on the debt. If something pops up in those four months you can use the cards to solve the problem.

It's never a good idea to save money at 1-2% and pay whatever a credit card is charging you. You're moving backwards financially every day that way.

Best wishes,

Leo

[misscity]

yes I realize my situation is not that bad but not having anything in savings is scary. That's how people feel deeper in the hole. I'm afraid of something coming through and pushing me further in the hole so having some cash handy is preferred. I did that math and indeed realized this whole thing could be erased between 4-6 months! As long as no other emergencies pop up:/ I would prefer to sack away more cash for savings but I rather eliminate the credit card debt. Once that's done, i'll try to pay off the car sooner.

[swanson719]

I'd go for a $1,000 in savings then worry about paying off the credit cards. You don't want to get further in the hole, meaning owing more in interest. The sense of security and lessening of stress in having some money in savings is worth it, at least to me. You spend more money mathematically because of interest payments two months longer, but it's a balance of security vrs. maybe $50 on interest. Six months from now you'll be in the same situation you would be weather you pay off the cards first or put into savings first, so it's not that much of a difference either way.