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A friend of mine who has been unemployed and living on an e-fund has gotten an unexpected reimbursement of $6,600 which she is very relieved to have. The question is whether she should use this to set aside for her to live on, or pay down her debt. She owes about $3,000 on American Express and $1,000 on Visa. Till now, she has been paying near minimum on each. She still has at least six months of e-fund, but she is fearful of the tough job market; it has been really difficult in NY. The extra $6,600 will give her a few good months of income to subsist on, barring a real emergency or problem.

You could go the way the previous post suggested, or you could pay off the full $4k of credit card debt and place your remaining $2600 into a high interest savings account like ING. (I can refer you and get you an extra $25 if you want). This is a viable alternative if you can commit to the following:

1) Do not generate new CC debt until you have income to cover it

2) Take the contributions you were putting toward both debts and put it toward your E-fund instead (unless it was coming out of your efund to begin with)

The bottom line is that if the finance charges on your debt is larger than the interest on your efund (ING - 2%, CC debt probably 7% or higher), then you are better off paying off the debt.
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