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Author: ramtough Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308846  
Subject: Debt or Investments? Date: 1/21/1998 10:03 AM
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I'm new to the boards so bear with me. I have somehow managed to accumulate about 5K in credit card debt. I would like to pay this off as soon as possible but I don't have any extra income at this time. However I do have a 2K position in the Kaufmann fund and a 3K position in the Janus fund. I make monthly contributions to each of these funds as well. I am in the process of reading the Fool Investment Guide, which says I shouldn't even be in mutuals. Should I sell my positions in these funds and retires the debt or should I just stop the monthly contributions of $100 and pay off the debt the best I can? Sorry for the long posting but any help on this would be appreciated.

Thanks Ramtough
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Author: Jackstone Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 529 of 308846
Subject: Re: Debt or Investments? Date: 1/21/1998 3:43 PM
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It sounds like you don't have an emergency fund. If this is true, then I would not retire the debt, and keep that money for emergencies. I would however stop diverting cash into the mutual fund and apply those $100 payments to the credit card until the debt is paid off. Paying back high-costing CC debt will usually net you more than investing and it is less of a headache since you don't have to try to invest well to get the great returns.

If you have an emergency fund, then use that money to pay back the debt. Monthly contributions to mutual funds is one of the best ways to invest, because it requires very little on your part. As long as you select good funds, AND you have high interest debt paid off, you can't go wrong (IMHO)

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Author: TMFRunkle Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 533 of 308846
Subject: Re: Debt or Investments? Date: 1/22/1998 11:05 PM
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<<I have somehow managed to accumulate about 5K in credit card debt. I would like to pay this off as soon as possible but I don't have any extra income at this time. However I do have a 2K position in the Kaufmann fund and a 3K position in the Janus fund. I make monthly contributions to each of these funds as well. I am in the process of reading the Fool Investment Guide, which says I shouldn't even be in mutuals. Should I sell my positions in these funds and retires the debt>>

This year I was almost in the exact same position as you. I ran up a lot of debt because of unforeseen expenses (and I bought my wife a lot of gold jewelery while I was in the Persian Gulf, OK, I'm not totally blameless) this past summer. I dumped a lot of my investments to pay off the debt. Economically it works, plus your cashflow is better, allowing you to continue without using the credit card.
George

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Author: AJE Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 535 of 308846
Subject: Re: Debt or Investments? Date: 1/22/1998 11:29 PM
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Ramtough:

I'm assuming you are paying a hefty interest rate on you card balance. If that is true, this is a "no brainer". Pay off the debt! With all due respect to Jackstone, Jackstone's comment about an emergency fund is not relevant (except this is an emergency). My advise is 1) Pay off the debt 2) Keep saving and investing the $100 each month 3) Use the money you were paying to your credit card company to build an emergency fund, pay for "stuff" instead of accruing new CC Debt and make further investments. If you follow these steps you will be better off. In the rare instance you experience an emergency before your E Fund has built up, you can tap your CC. Even if this occured, you are still better off not paying the compounding interest on 5k of CC debt. GOOD LUCK! AJE

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Author: mjskas Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 537 of 308846
Subject: Re: Debt or Investments? Date: 1/23/1998 12:12 AM
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For the most part, I would have to agree with AJE on 
this one.  Getting rid of the debt would be priority 1. 
The one thing that I disagree with him on is 
how to approach the funding of the emergency fund once 
your debt is paid off.  An absolute must do for anyone 
is to define the size of the emergency fund first. How 
many months worth of wages would it take for you to 
consider your fund "fully funded?"  I think all Fools 
would agree on that.

What follows was my *personal* approach to reach that 
funding goal.

  E-Fund Balance       Investment dollars
balance <1/3 of goal         $0
1/3< balance < 2/3           $100
2/3< balance < goal          $200


This allowed me to accomplish the following:
1.  Create a minimum reserve fund ASAP.
2.  Minimally invest in the market while still agressively pursuing E-Fund goal.
3.  Pursue other investment goals after the main worry of lack of E-Fund was past.
4.  Reach my goal!

Of course, this did not happen for me in a couple of 
months.  It took 18 mos. and a sizeable tax refund to 
get there.  It occurred to me that I always hear that 
you should be saving 10% of your salary.  If you tell 
people you are saving 20% of your salary, they look at 
you with awe (at least where I work).  Well, if you 
could save 1/3 of your salary every month, it would 
still take you a whole year to fund a 4 month emergency 
fund.

It all takes time, discipline and sacrifice.  Good Luck!

Mike


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Author: AJE Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 539 of 308846
Subject: Re: Debt or Investments? Date: 1/23/1998 8:41 PM
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Kudos! to Mike's advise on an E-Fund.

AJE

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Author: dikelsky Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 541 of 308846
Subject: Re: Debt or Investments? Date: 1/24/1998 11:21 AM
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Where is the money for the emergency fund invested? Is it under the mattress, in a Savings Account, Money Market Fund, Index Fund, Stock, etc. Everybody talks of the emergency fund but nobody says where to keep it. I imagine that the most popular answer will be the Money Market. It is liquid and probably has the best rate of return for its liquidity. However, it seems criminal to let 10K+ sit in a low rate of return account.

Comments?

Take Care All,
Mike Dikelsky

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Author: crazyfred Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 542 of 308846
Subject: Re: Debt or Investments? Date: 1/24/1998 3:55 PM
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<<Where is the money for the emergency fund invested? Is it under the mattress, in a Savings
Account, Money Market Fund, Index Fund, Stock, etc. Everybody talks of the emergency fund
but nobody says where to keep it. I imagine that the most popular answer will be the Money
Market. It is liquid and probably has the best rate of return for its liquidity. However, it seems
criminal to let 10K+ sit in a low rate of return account.

Comments?>>

If the amount in the emergency fund seems like a lot compaired to your income, then you probably have too much in the emergency fund. There should be enough to maintain your lifestyle for about 3-6 months, not to live off for several years. The idea is that if there is something that takes a large amount of money that is unplanned (such as a downpayment on a new car when the old one left part of its engine in the middle of the driveway). I personally keep only a few thousand dollars, as that's all that I can see being spent on any emergency that I can envision. (as a point of comparison, I could replace everything I own outside of investments for about two thouand dollars. Just never saw the need to buy anything else).

I keep my stash in a short term bond fund. Volatility is low, and the interest is better than the money market.

Crazyfred

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Author: WadaPhooliam Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 543 of 308846
Subject: Re: Debt or Investments? Date: 1/24/1998 5:03 PM
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<<Where is the money for the emergency fund invested?>>

Can't answer for anyone else, but ours is in money market. If it ain't liquid, it ain't an emergency fund.

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Author: indeep Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 550 of 308846
Subject: Re: Debt or Investments? Date: 1/26/1998 2:53 PM
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Money Markets do seem to be the place the keep cash reserves. Liquidity doesn't seem to be THAT big a factor. Typically, you can have cash from whatever mutual funds you're in in 2-5 days-- fast enough if you have some in a savings account. The key reasons for having your reserves in a money market would seem to be stability of share price and lack of risk

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Author: oldphart Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 579 of 308846
Subject: Re: Debt or Investments? Date: 2/2/1998 2:27 PM
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Mike,

I am a self-employed software contractor( an ORACLE DBA for those who care), with arguably one of the hottest skill sets in the IS job market today. I've done this, one form or another, for 15 years, and I can tell you that keeping that Efund liquid isn't a waste, it is an investment.

Mid 1990 through Mid 1991 was a real dry spell for contractors, a drouth of epic proportions. Big companies chopped IS staff in half, boom. A friend with 20 years senority spent a week laying off staff, then got the ax Friday afternoon. I had lucked into a long term assignment, but saw guys with very marketable skill sets go two, three, sometimes even four months between jobs.

Here's why the liquidity - several of those guys got trapped, burned by fine print rules which let their investment agents, brokers, or bankers hang on to the money for weeks. For those who did not see the dry spell coming, the extra wait really hurt their credit.

Don

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