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If there is a better forum/topic for this question, please let me know...

I'm starting over after a few bad years where I lost all my savings, retirement and home equity. I am left with a nice home that is appreciating, an interest only loan, the potential to make a decent salary and 32K in credit card debt, no other debt. I'm contracting short-term after being out of work for 4 months and getting close to some permanent job offers.

So here's my question. I have a budget all made up for my permanent salary. I want to save money for emergencies but I also need to put massive amounts of money toward the credit card debt (BTW, I have already put this amount in lower interest accounts, snowballing and have actually paid a few cards off completely).

How do you determine percentages to put toward emergencies? And also, should I start contributing to a 401K even if there is no company matching, which paying off this debt?

If I don't save anything, I can pay this debt off in a little less than 2 years, provided I get the salary I'm banking on. But that leaves me with no savings.

Second question... if I do start putting money into an emergency fund, is a bank savings account the best place for this? I have a very small AIM mutual fund left, about 400 in it, I could add to that but it's not as liquid as a bank savings account.

Ideas??
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While I was paying off debt I kept a small efund of $1000. My rationale was that if something did happen I did not want to use the cards under any circumstances. The amount is up to you. For some people the $500 to cover most insurance deductibles was enough. As a homeowner, I chose to keep more in the event that something happened around the house (i.e. hot water heater).

I suggest you keep this someplace very liquid and in an interest bearing account. I used ING Direct but there are plenty of other choices.

s far as the 401K goes, since there is no match I would hold off on it. Others will tell you that you can never get these years back to invest for your future...again a personal decision.
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The Dave Ramsey method would use this order in answering your question:

1. $1000 emergency fund in the bank

2. Pay off everything but your house

3. save 3 to 6 months expenses for a fully funded emergency fund

4. save 15% of gross income to retirement.

Since you don't get a match i'd forgo the spending on the retirement fund until you are debt free.

Joe
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How do you determine percentages to put toward emergencies? And also, should I start contributing to a 401K even if there is no company matching, which paying off this debt?

While paying down debt, there are many different opinions on the best approach and the important thing is to tailor the advice to fit your own situation and personality. Some people would recommend setting aside a small eFund while paying down debt, maybe something like $500 or $1000 that will cover most true emergencies without taking too long to save. Then there are other people that might suggest holding off on the eFund completely until debt is under control or you may find people that think you need a larger eFund before paying down debt to avoid the trap of charging more to the cards. Personally, I recommend the approach of setting aside somewhere around $500 - $1000 as a mini-eFund, with the amount being whatever gives you the most comfort.

If I don't save anything, I can pay this debt off in a little less than 2 years, provided I get the salary I'm banking on. But that leaves me with no savings.

To compare and contrast, how much longer will it take if you send $100 per month to the eFund? $50? $25? Again, this really will vary from person to person as some people are more comfortable without a savings cushion while in the aggressive debt reduction mode and other people would never sleep due to the stress and worry.

Second question... if I do start putting money into an emergency fund, is a bank savings account the best place for this? I have a very small AIM mutual fund left, about 400 in it, I could add to that but it's not as liquid as a bank savings account.

Rather than a traditional bank savings account, you would likely be best looking into one of the online offerings such as ING Direct or lately the Emmigrant account is gaining in popularity. I am not positive of the current rates but I believe ING is around 3.30% interest and Emmigrant is higher, around 3.50% or 3.75% I believe. Over on the Online Banking board you can get a wealth of information on the various options, as there are more than just these two. I don't know if Emmigrant has a referral bonus but ING does offer a referral bonus, where an existing account holder refers you and you get a free $25 and that person gets $10 (feel free to respond via email if you opt for ING and need a referral).

Also, you note that you have $400 in your current account. Going back to my opening comments about setting aside an initial eFund, it looks like you have a good start. If you can top that off a little bit, you should have a little cushion while you begin to eliminate that debt.

Keep asking questions, the people here are fantastic and many of us have or are living through these situations.

dt
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I am in the middle of a CC paydown that started in the mid $30,000's. I took the first 8 months or so (while making large snowball payments) to set-up about a $2500 e-fund... but my debt is at 1.9% right now, so if I had a higher CC interest rate I could have dealt with a lesser e-fund.

I just felt like it was safer for us to have that savings as we had both been in the process of taking new jobs, and we have two cars that are getting ready to have to large fixes in the next year or so.

So... go with what you feel comfortable with. $1000 will do, less will also do, but it's certainly more risky.

mz00m
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Hi mew!

I think you've answered most of your question in your post by making it clear that your priority is to get your debt paid off as soon as you possibly can. I admire your thinking, and I think that's the way to go.

My suggestion for you as far as the emergency fund would be to put a very small amount away each week until you have a cushion that'd let you sleep peacefully. Let's say somewhere around $1000 that's put away into a savings account, or ING account or wherever as long as it's liquid enough for your needs.

For an amount such as this, I wouldn't even bother with an ING, as that'd take a few days in turnaround time should you need the money. From what you're describing, you want an emergency fund that you can access on the spot should you need a repair, or other unexpected expense.

That said, I'd encourage you to throw as much as humanly possible toward the debts. The more you can decrease those each month, the less you'll end up paying in interest rates, and those are what are going to ultimately hurt you the most.

Good luck!

Tony
...but I still am...

Off2Aruba
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I'll definitely second (third?) the idea to skip the 401K for now. The tax advantage is nice, but without a match, it still doesn't compare to your credit card rates. 20%+ debt on the cards will never be beaten long term by the stock market. Even investment you have or could have right now would be a better deal if 'invested' in your debt. Unless you have the debt at very low rates for a very long term, and can definitely pay it off before then.
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Thanks for the replies! I feel a little better now, though I wish I had no debt. I do have an annuity IRA with $3500 in it still. And I actually have 1000 in savings right now. As I mentioned, I was unemployed for 4 months and 3 weeks ago started a contract job so I had that money as a cushion in the bank.

The biggest issue right now is a permanent job. I have a few options in the works but waiting for a solid offer. My contract firm has a no matching 401K and one company that might make me an offer has the same thing, no matching, thus that question.

I think I will just start paying down the debt. The contract job will allow me to start but a perm job will make it a little easier. I'm dying to start saving again. I was just starting out in investing a few years ago when the economy knocked me off my feet.

Thanks again...
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