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Author: leech8 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308367  
Subject: Juggling CC debt vs e-fund Date: 11/17/2003 4:53 PM
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I currently have about 2,000 in CC debt at 8% or less. Meanwhile I also have about 3,000 in an e-fund at 1.95%. Right now $400 or more per month goes to the CCs per month (in addition to some previous cashing out of savings to buy it down a bit.) My CCinterest-aversion instinct tells me to pay off the CC with savings, But although my job is quite secure I am a bit uneasy about that drastic of a reduction in my e-fund. (The e-fund is also funded in increments of about 400/month.) The financial-stratego side of my personality says that it would be a good character building exercise to pay this of over time as I can afford to out of current income.

This is somewhat analogous to learning to juggle (many a career has been stunted by day jobs). When learning to juggle many beginners tend to get their juggling pattern going and then find the balls -- which they controlled a the onset -- to get further and further away from their body until they are out of reach and drop to the ground. There are two common approaches to correct this tendancy to overextend.

The first approach is to set rigid limits. For the juggler this means to juggle while standing facing a wall. Your lack of control causes you to bounce the balls off of the wall and over time if you choose to learn from your mistakes you will learn not to overextend yourself.

The second approach is to walk backwards while juggling. This is my preferred method for teaching new jugglers control. The rearward motion forces you to think about where you will be in the future and planning each toss so the ball lands exactly where you plan to be when the ball lands. This also gives you more distance from the wall, which means that should you even loose control you have more time to recover before hitting it.

A third scenario features a begining juggler who starts to lean forward to catch slightly out of range throws, but the off-balance position causes the next throw to overextend them a bit more and they step forward once, then twice, and before long they are running, which seems fine until they throw far enough away that they can't keep up or they run into an unforseen object (say a park grill or firehydrant).

Anyhow, I feel I need to back off on my spending so I can afford to pay more quckly on the debt. I hope this will not only eliminate the debt burden but also teach more controlled spending, rather than just eliminating the debt and assuming and hoping I learned my lesson.

leech8
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Author: agg97 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173522 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/17/2003 5:06 PM
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Leech8,

There's been many discussions about this very topic in the past. Basically, it all comes down to how comfortable you are with your e-fund versus CC debt.

I would say a large number of people (but maybe not a majority) would consider having $1,000 in an e-fund while throwing the rest at CC debt to be a good compromise. The idea is that you have cash on hand for almost any emergency, and you can always run up the CCs again if something extraordinary happens. In the meantime, you'll have not paid as much CC interest.

If I were in your position, I would pay off the CC debt now, and then throw $800/month at your e-fund until it is where you want it to be. YMMV. It would only be 3 months until it was back to where it is now...a risk I'd be more than willing to make.

-Agg97

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Author: MaestroCindi Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173526 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/17/2003 5:31 PM
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Why not see if you can get any 0% balance transfers? That's what I did when I had $2500 of cc debt. I've been unemployed this year, so I only pay $50/month to the cc (it's down to $1950 now) and I've actually built up my savings in case it's hard to get temp work once the unemployment runs out. And this way, paying off my cc debt slowly isn't costing me anything.

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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173527 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/17/2003 6:04 PM
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leech8,

You wrote, I currently have about 2,000 in CC debt at 8% or less. Meanwhile I also have about 3,000 in an e-fund at 1.95%. Right now $400 or more per month goes to the CCs per month (in addition to some previous cashing out of savings to buy it down a bit.) My CCinterest-aversion instinct tells me to pay off the CC with savings, But although my job is quite secure I am a bit uneasy about that drastic of a reduction in my e-fund. (The e-fund is also funded in increments of about 400/month.) The financial-stratego side of my personality says that it would be a good character building exercise to pay this of over time as I can afford to out of current income.

So you're wondering about depleting your efund by $2K to pay off credit cards.

My rule of thumb for a situation like this is, Can I get as good a rate if I have to borrow that $2,000 again? If the answer is Yes, then I'd pay it off. If the answer is No, then I'd continuing paying it down.

Unfortunately, this rule requires me to hazard a guess about my future. But since I'm currently a pretty good credit risk and I don't have trouble managing and paying my bills on time, the odds are pretty good that I'll still have at least as good a credit score when that emergency arises.

So if this were my debt, I'd probably throw the efund at it. If I'd royally screwed up my credit or if the debt involved promotional terms or an installment loan, then I'd be focused on maintaining a hefty efund instead.

- Joel

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Author: fredinseoul Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173528 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/17/2003 6:06 PM
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FWIW, I would kill the cc debt with this situation.

Another option is to send 600 to the cc and 200 to the efund.
or 700/100, or something. You have a decent efund start, I think you could cut down on savings for a short time to focus on the debt. If you went with 800 to the cc, you would be done in three months.

Fool on!

fredinseoul

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Author: peteyperson Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173534 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/17/2003 8:01 PM
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I'll put 5 pence in (a Brit).

It will feel like a success to pay off your last debt(s). I would do so. You are likely to save more once that is achieved to build a larger e-fund. It should encourage you further. You can now build a stronger safety blanket and start building wealth in the progress. Right now, you're not doing any of that. You're still back at the paying off debt before I can restart my financial life and you're wasting money in interest charges to boot.

Alternatively, ask yourself this. If you were debt-free but had no savings, would you borrow $2,000 on a credit card at 8% in order to stash away $2,000 in an e-fund at 1.95%? This is what you are doing by not paying off the debt now. Think about it..

Petey



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Author: windyelliott Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173570 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/18/2003 9:45 AM
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The financial-stratego side of my personality says that it would be a good character building exercise to pay this of over time as I can afford to out of current income.

My advice is never to pay for character building. You will get plenty of it for free over the course of your life. If you can pay off the debt completely, then do it. Then continue to put the money you would have sent to the credit card company into your efund until it is built back up and make sure you don't get into debt again.

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Author: Dilmatz Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173592 of 308367
Subject: Re: Juggling CC debt vs e-fund Date: 11/18/2003 12:48 PM
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I currently have about 2,000 in CC debt at 8% or less. ... Right now $400 or more per month goes to the CCs per month

Another point of view -- Assuming things stay the same, you'll pay off this balance in 5 months without touching your efund. That's not that long.

I had this same discussion with DW. We had the money to pay it down, but it would reduce our efund quite a bit. I wanted to do it NOW but she suggested we just have patience and work it off. I'm glad we did so and I think it's a viable option to at least consider...

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