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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308557  
Subject: Re: Min pay + extra=?? Date: 5/28/2001 6:25 PM
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Now that your back from hitting the floor

No floor hitting here. When one has a cash emergency, one does what one must do, even if it means a cash advance.

It is good to have a contingency plan.

The usual plan promoted here is to have a "mini emergency fund" (savings) of $1,000 to $1,500 and, once consumer debt is paid off, build up an emergency fund with the equivalent of 3 to 6 months of living expenses in someplace safe and liquid (e.g., a money market mutual fund, a money market savings account, or if over 3 months of living expenses, it may make sense to trade a little liquidity for a little better yields). That is also the approach I recommend.

However, not everyone agrees with a "mini emergency fund" or any savings at all while paying down credit card debts.

Another approach is to have an available line of credit somewhere, such as a charge card that has zero balance that you can use in an emergency, but would normally keep it paid off. Not only does this separate long-term debt you are paying off from cash emergencies, but it also eliminates the problem of being unable to pay off higher interest rate debt until the lower interest rate debt on that card is paid off. By having a separate card, if you do need to use it, you have separation of long-term debt elimination from short-term cash emergency, so it doesn't get emotionally demoralizing seeing the balance on the snowballing card going the wrong direction.

There are advantages and disadvantages to both approaches. Mini emergency fund: psychological boost (both achieving a goal and being able to handle smaller emergencies without watching the debt go up), training at looking at savings first to handle cash emergencies instead of credit (though credit is still there if needed), training to not touch that money unless it is really needed. An empty credit card: you are using as much of your cash as possible eliminating high-interest debt instead of having some of it tread water in a relatively unproductive savings account.

Sometimes the issuer of an empty card will make a balance transfer offer (or you could call and ask) and that would open the avenue to transfer the balance to the empty card and make use of the lower interest rate (but check for balance transfer fees first!), and then the now-empty card would then serve as the emergency card.

Now since the CC's look at purchases & cash differently with VERY different rates, Can I instruct "them" to put the min where ever it is they put it and use the $500 I pay towards the cash balance?

Usually no. However, you can call and ask. I have heard of one case where one can request specific balances to be paid off, but it required the payment to be sent to a separate address with specific instructions on how to apply the payment.

Lacking that, the next apprach would be a balance tranfer of the whole amount to another card, hopefully one with a lower interest rate.
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