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I have a credit card with a balance of about $1100 @ 1.99 APR. I was wondering if I should pay this off with money in savings. I currently have 1000 in savings. In addition I have a temporary second job and I was wondering would I better off to pay all of the balance now or just the 150 and then in the next few months pay the final amount? I'm worried that if I drain all of my savings and something comes up I will have to charge again. Any help would be great appreicated.
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With so little in savings and such a low rate on the card, I wouldn't pay it off.

Beyond that, you won't find much agreement here.

Some will say since you can get more in a savings account you should never pay it off.

Some will say that you should do all you can to be completely debt free.
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I'm worried that if I drain all of my savings and something comes up I will have to charge again.

ASolow,

This statement is why I reccomend keeping the savings. It doesn't make the best financial sense, but it I feel it it the smart thing to do.

Put the money from the extra job towards the debt and it will disappear. BTW, the 1.99% is a pretty good rate. That makes it a little easier to wait on the payoff, in my mind.

fredinseoul
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Hi ASolow,

Here's another way to consider your debt. You're currently paying a very low rate of 1.99% APR to borrow $1000. If you had your $1000 of savings in a totally free Internet saving account such as www.emigrantdirect.com at 5.05% APR interest you'd actually be earning an interest spread of 3.06% APR. This is one way banks make money by borrowing money at a lower rate and lending it back out at a higher rate. Of course, a bank will do this on a much larger level where a couple % points can make a larger difference.

Here's the math on your current situation:

$1000 at 1.99% APR = $19.90 per year in interest

$1000 at 5.05% APR = $50.50 per year in interest

You can see that in this scenario, you're actually making $30.60 per year.

Now that doesn't seem like a large enough gain to jump for joy, however, it's a good exercise to help you weigh your options.

Derek
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Here's another way to consider your debt. You're currently paying a very low rate of 1.99% APR to borrow $1000. If you had your $1000 of savings in a totally free Internet saving account such as www.emigrantdirect.com at 5.05% APR interest you'd actually be earning an interest spread of 3.06% APR. This is one way banks make money by borrowing money at a lower rate and lending it back out at a higher rate. Of course, a bank will do this on a much larger level where a couple % points can make a larger difference.

I would highly recommend AGAINST putting your e-fund of $1,000 to an online bank such as ING or EmigrantDirect. The purpose of that $1,000 is so you can access it IMMEDIATELY in a true emergency. With ING or Emigrant, you'll be waiting 2-3 business days to get to it.

I recommend putting that $1,000 into a savings account at a local brick & mortar bank. Once you have more of an e-fund built up, you can consider putting a portion of that into an online account to get the better interest rate. However, I would still keep a minimum of $1,000 at the local bank.

Before I got married, I kept an e-fund of $2,000 at the local bank + any extra at Emigrant. I figured that $2,000 was the most I would need in pretty much any "emergency" I could fathom (replacing my air conditioner).

-Agg97

-Agg97
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$1000 at 1.99% APR = $19.90 per year in interest

$1000 at 5.05% APR = $50.50 per year in interest

You can see that in this scenario, you're actually making $30.60 per year.




Of course, you're overlooking the fact that interest has to be paid on that 5.05% earnings. Realistically, figure 25% will be paid to the tax man. By my calcuation, that leaves the OP earning less than $18 a year.

I recently had a similar situation. ~$4k sitting at a 2.99% fixed for life, and another $3k sitting at 1.99% fixed for life. I had more than enough money sitting in ING to pay both, earning somewhere between 4 and 5%. But how much was it really earning me? Assuming the rate was 4.4% (makes for easy math), and a 25% tax rate, my effective net interest rate was just 3.3%. That means my true earnings by keeping that money in savings was .31% on $4k ($12.40/year), and 1.31% on $3k ($39.3/year). That's roughly $52 a year. Yep, just $1 a week for carrying $7k in debt whose rate would skyrocket if I ever missed a payment. A late fee and one month's interest would wipe out any potential benefit for the entire year. I saw the light and paid both cards off a few weeks ago.

For the OP, I would make payoff these a priority, but don't rob your efund just yet. Wait until you've built up enough cushion that taking money out won't leave you in a dangerous position.

Jeff
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I just want to thank all of you for your insight. I'm going to re-read these posts again, and look at my future out look and then make a decision. Thanks again

ASOLOW
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ASolow:

From your previous posts, it sounds like you recently paid down your balances using your tax refund and now have 1100 left over, which you consolidated at 1.99%, a rate that expires in October 2007. Correct?

It also sounds like your income is "iffy" with the "temporary second job" you mention ... Is your temporary job lasting until October?

If you have the means *now* to eliminate your credit card debt totally, you might do well to just pay it down from your savings. At the very least, you need to set up a payment schedule that will have your CC balance at $0 before October. Can you afford to snowball say, $150/month out of your income? Run the numbers and look at ALL your expenses. Is your car insurance coming due between now and then, do you have doctor vists coming up? ...

At most I'd take half the savings and put it on the card. I wouldn't draw down the savings below $500, and if you can avoid touching it at all, that's probably best.

~dswing
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>>I would highly recommend AGAINST putting your e-fund of $1,000 to an online bank such as ING or EmigrantDirect. The purpose of that $1,000 is so you can access it IMMEDIATELY in a true emergency. With ING or Emigrant, you'll be waiting 2-3 business days to get to it.<<

I personally have my e-fund in Emigrant. My thoughts were that if I had an emergency, I would pull out one of my many empty credit cards and charge whatever it was, and then I could initiate the transfer of money to checking and after the 2-3 days I could have the cash to pay off my credit card in a week, before I got charged any interest. I think there's a rare emergency that I would need actual cash - today - for.
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Before I got married, I kept an e-fund of $2,000 at the local bank + any extra at Emigrant. I figured that $2,000 was the most I would need in pretty much any "emergency" I could fathom (replacing my air conditioner).


Admittedly OT, but you can't wait 2-3 days to replace your air conditioner? Where do you live, Panama?
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