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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: emergency fund while in debt? Date:  2/27/2001  11:58 AM
Author:  Dwdonhoff Number:  59668 of 312236

Clearly, you still have available credit... so consider the various considerations;
1) Savings will earn some amount of interest (small),
2) the unpaid debt will be charged interest (larger), making the net of the 2 accounts a negative monthly charge,
3) Unused credit incurs no interest charges, so it acts as a savings account at a net zero monthly charge.

SO... as long as your credit is good and available, keep paying all extra funds to eliminate debt principal. The unused credit balances will serve as your savings accounts, and cost you less (zero interest on unused credit) than the net effect of paying interest on credit balances and receiveing savings interest.

If you do not have enough available credit for the emergency timeframe you want to cover (6 weeks, or whatever), then do stuff away the necessary balance into savings... but do so AFTER you've paid all funds to debt principal. In other words, always make sure you pay your cheaper money (the stuff you earn) to buy back expensive money (the stuff you borrowed) first. Definitely save, but only when that's the highest and best use of your funds.

Best luck!

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