Feeling antsy, want to pay off some debt, but should I?

Savings: $1,345.25

Debt:

  • Discover: $4,993.27, 25% interest, monthly payment $112, monthly interest ~$92
  • Chase Amazon Prime Visa: $893.30, 23.49% interest, monthly payment $35, monthly interest ~$18
  • Credit Union Visa: $508.99, 0% interest through Feb 2020, monthly payment $30, monthly interest $0
  • Furniture Row: $1,132.08, 24.09% interest, monthly payment $76, monthly interest ~$20

I have savings for emergency trips to visit my sister (she has had some health issues but she is doing okay right now), a service dog (it will take at least a year to get a service dog, I have just started the process), a one month buffer, electronic device replacement (none in need right now), general savings (for a small $ amount emergency), 3 months of expenses.

Options:

  • Do nothing, leave savings alone, keep paying off debt monthly which will take years to pay off
  • I could pay off Chase and the Credit Union Visas today if I use all my savings. I would have $65 more per month without those monthly payments to put toward the Discover card payment.
  • I could pay $1,345.24 on my Discover card, which has the highest balance and the highest interest rate. I would have 3 months to pay off the Credit Union Visa so I wouldn't get hit with the interest charge in February. I would have all the same monthly payments, with the Discover card monthly payment dropping some, but I would still pay what I am paying now, and in February put that $30 from the Credit Union Visa being paid off toward the monthly Discover card payment.
  • I could pay off the Credit Union Visa, so I don't start getting interest charges in February, and then use the balance to pay on the Discover Card. I would have $30 per month without the Credit Union Visa monthly payment to put toward the Discover card payment, which drop the monthly Discover card payment a little.
  • Leave some money in savings, $300-$500, and use the rest to pay off debt; pay off the Credit Union Visa and then apply the balance to either the Chase Visa or the Discover card; or use the rest to pay on the Discover card, I would have 3 months to pay off the Credit Union Visa so I wouldn't get hit with any interest charges in February.

What do you think the best option would be? I would love to get rid of 2 debts today. I also would love to put a chunk of change on the Discover card. Am I just feeling antsy or would doing something with the savings toward paying off debt be the smartest thing to do. It feels kind of funny to have that much in savings (it's a lot to me) when I have so much debt. I have been putting $240/month into savings for the past few months instead of putting it toward debt. I know I should be paying off debt.

Thank for any suggestions, help, advice!

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  • Since you have three months expenses saved on top of this, I would 100% use all this money toward debt. I would pay off in full what I could, then throw to the next best option using undebt.it

    Plug all of this into undebt.it and look at your payoff options. Plan to snowball your payments. So, if your budget today is your monthy minimums on all cards, that is your budget going forward. You will always pay that amount towards your debt, regardless of what your new minimum is for the cards (you still pay the minimum payment on all cards).

    Then, I take any extra, unexpected income that isn't from my paycheck and put all that towards debt. If I fully fund my budget and have extra from my paychecks, I split between savings and debt.

    Reply Like 1
    • Heatskitchen I say this because, worst comes to worst, you drop your buffer a bit as your emergency fund.

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      • internettie
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      • internettie
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      Heatskitchen I do NOT have 3 months of expenses saved. I have $1,345.24 in savings and it's for all the things I mentioned. I do use undebt.it. Knowing that I don't have any other savings or a buffer or 3 months of expenses or an emergency fund, what would you suggest?

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    • internettie Oooh I misread your post where, before options, you described your savings. Apologies!

      Personally, I'd keep what you have now and just snowball everything as much as possible by the best payoff option. I prefer to keep $1,000 emergency fund. Most unexpected expenses are less than that and this way I wouldn't need to put it on a credit card if it came up. 

      My personal caveat, if there's enough in my savings to payoff a debt completely without depleting it, I might do that. Since your Credit Union has zero interest, I wouldn't pay that one off yet. I might consider the Prime Visa to be done with it (and some interest). Then snowball that $35.

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      • internettie
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      • internettie
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      Heatskitchen thank you. There are so many options for what I can do so it is very helpful to get opinions from other people on the forum. I think that in my case, with such a low income, that maybe $500 in savings would make me feel comfortable. Then I could pay off the Amazon Visa and the CU Visa. I just want some debt payoff wins! LOL Thanks for the suggestions! 

      Reply Like 1
    • internettie That's totally valid! And finding what your right emergency fund level is, is important! As you mentioned below, you're already on a lower income, so $500 does sound right. I would just encourage you to not completely deplete those savings in sake of debt.

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      • internettie
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      • internettie
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      Heatskitchen I decided to not completely deplete the savings. I will keep $500 in there and throw the rest at debt. Thanks!

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  • internettie said:
    I have savings for [X, Y, and Z]

    You have debt because you put your money in the savings account instead of sending it to the CC company.

    I would challenge the notion that you need a dedicated cash fall-back position, or at least one as large as you seem to have. Most things you describe for intended usage can be put on a CC if it came to that. Additionally, if an emergency must be handled with cash, one can usually reallocate from elsewhere in the budget (and put those other things on credit). (Consider this when deciding how much cash to keep.)

    As such, I would send most of the savings to the highest rate card. I would also make budgeted purchases on the lowest rate card (0% in this case) and reallocate its payment (all but the minimum) toward the high-rate card.

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      • internettie
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      dakinemaui you are correct. I was paying off debt with the $240/month I have after everything else is budgeted, including monthly minimum payments. I think I got nervous about not having any savings of any type and started putting that $240 into savings and not paying extra on debt. I was actually okay with having just $300 in savings and paying off debt. The Discover card has the highest interest rate and the highest balance. I think I just wanted the win of paying off two credit cards in one fell swoop. I am only paying the minimum on the 0% interest rate card. 

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    • briefcase
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    I'm a big fan of the Dave Ramsey method.  Translating that into YNAB terms, I would be a month ahead, following the four rules (especially Rule 2), have at least a $1k emergency fund, and then snowball all debt from smallest to largest.

     

    If you're following the four rules as best as you can, it's pretty hard to bump you off financially.

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      • internettie
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      • internettie
      • 1 mth ago
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      briefcase I am not a month ahead and I do not have an emergency fund. I think that's why I started saving instead of paying on debt. The thought of paying off two credit cards sounds good though. Not having any savings sounds scary. I will think about all of this. Thanks.

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  • I'm confused about how you've described your savings. Is $1345 is the total amount you have, and you are aspiring to save for all the things you listed, or is $1345 the amount you have on top of savings for all those things? 

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      • internettie
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      • internettie
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      WordTenor I only have $1,345.24 total. I split it out into those categories I listed as the things I would LIKE to have savings for. It is aspirational. I am on Social Security Disability and get paid once a month. I can send $240 to debt and/or savings. I only make $1,484/month.

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      • WordTenor
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      • WordTenor
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      internettie Perfect. That helps with advice! 

      Since you're paid once a month already, I would drop your savings to $500. Don't worry about a buffer; you basically already have one. You're budgeting a month at a go. $500 should cover most medium-sized emergencies, and you can always spend a little credit if need be. It will buy a new cheap laptop, a used or cheap smartphone, and most plane tickets.

      Then I would just do a straight snowball. With a small, fixed income, the ability to get cashflow back is more important than how much interest you're paying. The $845 you take out of savings, I would kill the CU Visa, even though it's at 0%. The rest throw on the Amazon Prime. With the $30 freed up, you now have $270 per month chunking at the Prime Visa, which is now $556. That's gone in two months. So by December or January, you're chunking only at the Furniture Row and Discover. But note that now you have $305 per month that is not technically obligated someplace, plus $500 in savings. If an emergency does arise, that's a fair bit to be able to maneuver with. Furiture Row is gone in about April, at which time you've got $500 plus $380 per month that you can pull back if needed. The Discover Card will be slow and steady, but will probably be gone in a year or so. 

      Great work freeing up so much money for savings on such a small income. You've got this! 

      Reply Like 7
      • internettie
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      • internettie
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      WordTenor Thank you! Just curious what you would think about this: I have a loan with my credit union that I can get $540 from. The interest rate with the CU is only 9.9% vs. the 20+% interest rate on the credit card. I do auto payment with the CU say that's easy peasy. Think it would be smart to do that? 

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      • WordTenor
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      internettie Really, interest rates aren't your problem here, even as high as they are. You are throwing 1/3 of your monthly income (go you!) at $7000 of debt. If there were no interest, you'd kill it in 15 months. If it was all at 25%, you'd pay it all off in about 19 months. Getting a small amount of it refinanced at a lower rate would will help a tiny bit, but not a lot. I didn't actually run a snowball simulation, but I suspect it won't even move the needle a whole month. Since you can't get enough from your CU to cover the entirety of one of your big loans, I wouldn't create yet another thing that you absolutely have to pay. The idea here is to get control of more and more of your money so that if an emergency does arise, you can pay just the minimum on the Discover card and recoup the money you've been sending to it for however many months it takes you to recover from the emergency. The more loans you have, even at lower interest rates, the more of your income each month is taken without you having a choice about it. 

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      • internettie
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      • internettie
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      WordTenor the $500 from the CU would be the same loan. I would basically just be transferring the $500 to the Amazon Visa. I know it's not a lot saved in interest but I'd rather owe my CU than Chase for the Amazon Visa. Considering how low my income is, I know that I am doing okay. It actually works a little better for me to not have as much autonomy with my money. LOL I can do more and save more when I have less to work with. The "Inverse Property of Being Me!". I do appreciate you speaking about the interest rate not being the big thing. That's why I thought about paying off those 2 smaller debts. Big DEBT PAYOFF WIN by doing that. I can keep $500 in savings and that makes me feel comfortable. Paying off debt makes me feel great! I appreciate the help!

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  • Other relevant questions: 

    How regular is your income? 
    How much of your income can be sent to debt/savings? Just the $240 or is there more somewhere?  

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  • Not to get all Dave Ramsey on you, but I'd probably save $500 as an emergency fund and then pay off the smallest credit card (following the snowball method). Then, put the payment you were paying for the smallest card, and apply that AND your normal payment to the next smallest debt. Rinse and repeat until it's paid off. Have you tried the undebt.it site? People seem to like it for the snowball plan.

    Reply Like 4
      • internettie
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      xgirlmama I used to be a Dave Ramsey fan. Then I found YNAB and let DR kind of go by the wayside. I do like how he does things. I like the idea of having some savings, like the $500 you suggested. The smallest card is my Credit Union Visa that is 0% interest but only until February. I could take that $30 a month that I pay on the CU Visa and put that on another debt. I have tried undebt.it. I was just not sure about whether I should let the savings sit or pay off some debt. I will think about this and see what would be best. I appreciate the suggestion.

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  • internettie said:
    The Discover card has the highest interest rate and the highest balance

    Thus the suggestion to make what is effectively a fee-less balance transfer onto the 0% card via budgeted purchases (assuming that's possible). Ideally that highest-rate card would also have the lowest balance.

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      • internettie
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      dakinemaui I can't do a balance transfer. I have very little credit on the CU Visa (the one that has 0% interest). Unfortunately the highest rate card has the highest balance and the lowest rate card has the lowest balance.

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  • Okay, here's what I have decided to do:

    • Keep $500 in savings. With my low income ($1,484/month) having $500 in there makes me feel comfortable in case of emergency.
    • Pay off the Credit Union Visa, $508.99
    • Pay off the Chase Amazon Prime Visa, $893.30

    Being able to pay off 2 debts, keep $500 in savings, and still have $94 in my checking account is a big win for me! I pay all my bills, I have sinking funds for the bills coming due in the next year that only come up once a year, and now I can focus on knocking off the Furniture Row card. After that, Discover is going down! I want to be debt free ASAP. It will take time, but I can be so much more focused with those two small debts paid off. I appreciate all the suggestions. It has been helpful! I feel really good about this course of action. 

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      • Superbone
      • YNAB convert since 2008
      • Superbone
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      internettie It sounds like you have a good plan. The most important thing is to demand of yourself not to go into further debt unless there is an emergency and you have no choice. It appears that you will be out of debt in less than 2 years at which time you will be able to snowball your savings and give yourself some added comfort. Best of luck!

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      • internettie
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      Superbone thanks! I have taken those credit cards and put them away so they won't be in my wallet. I have also taken them off any account I had them tied to. I am very excited to pay two credit cards off! I know if there is a TRUE emergency that I have $500 in savings. I have not had any real emergencies in years, but I'm ready! I can't wait to get that Discover card paid off. I will be laser focused on getting that done! It will take time, but I'm in this for the long haul.

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      • internettie
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       WordTenor I did transfer the $500 from my loan to the Chase Amazon Prime Visa. There was no application, no fee. I just had to transfer between accounts. The interest on that is 9.9% vs. the 24% or so on the Chase CC. It's not totally about the bottom line. I guess I just needed a win and I needed to see those cards gone. I feel like having four CCs to look at made it hard for me to focus. Now that there's just the Furniture Row account (it's actually closed) and Discover, I feel like I can be laser focused on blasting through the Furniture Row debt to get that Discover card paid off. I know it's going to take time, but I'm in this for the long haul. I know I can do it. It really was just seeing those debts sitting there getting paid off so slowly because of interest (in the case of Chase) that made me want to pay them off.  Now that it's done, I feel so much relief and motivation. I do appreciate you pointing out the numbers. I had to realize that it was the emotional win more than the bottom line numbers and you helped me to figure that out. Thanks!

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      • WordTenor
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      internettie I guess the math isn’t adding up for me? If you kept $500 in savings, that’s $845. It leaves $556 either way, either as new excess on the CU loan or on the Chase card. 

      How did you pay off two things with less than two things worth of money? Or did you decide not to keep the $500 in savings?

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      • internettie
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      WordTenor it honestly was kind of a shell game. I kept $500 in savings from the $1,345.24. That gave me $845.24 to use to pay on debt. I transferred $540 from my loan account (increasing that debt, but I feel less stress paying my credit union than I do about paying the credit cards) to checking and added that to the $845.24. That gave me $1,384.24 to pay on debt. I paid $893.30 to Chase to pay off that account. That left me with $491.94. The total debt for the CU Visa was $508.99. I took the $17.05 I was short to pay off the CU Visa from checking. Did I actually make any difference money wise? Not really. But emotionally I feel a win paying off two credit cards. And I still have $500 in savings. I don't have a ton of money so getting a win was important to me. It also will allow me to be more focused on paying off Furniture Row and Discover. There is less mind clutter now with just those two debts to focus on. The CU loan will get paid off last. The interest rate is low and like I said, I have less stress with that debt. I want to get that paid off too and will put the whole snowball toward it as I go along. So, the math doesn't really add up. The win was the goal for me. So, two debts paid off, $500 in savings, the loan is $540 more, but I can live with that. Hope that makes more sense. I do appreciate your responses and questions. They really do help.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
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      internettie This thread just reminds me I've spent ridiculous amounts of money at Furniture Row in the past 2 months.

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      • internettie
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      nolesrule glad to help, I think. lol I totally understand. I know that sometimes even if I know I'm spending when I shouldn't it still takes seeing it in someone else that I realize what I'm doing is not helpful to my goals.

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  • Heatskitchen said:
    internettie That's totally valid! And finding what your right emergency fund level is, is important! As you mentioned below, you're already on a lower income, so $500 does sound right. I would just encourage you to not completely deplete those savings in sake of debt.

     Agree.  But I wouldn't base how much e-fund I need on my income but rather on how vulnerable I am to simultaneous events and how quickly I could pull together the funds from my income to deal with life.  As I recall, internettie has some pets to care for, something one doesn't have the option of putting off doing. 

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      • internettie
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      HappyDance I do not have any pets now. I only had my best friend's pup, Woody, and we had to say goodbye to him on September 30th. I would give anything to have him to spend some money on, but he is gone now and I am lost without him. As for my emergency fund, I think that having $500 in savings and now having two available credit cards with $0 balance makes me feel comfortable to handle any emergency that might come up. I have listed out the things that I want to have savings for and that helped me to figure out what a good e-fund amount would be for me while I am paying off debt. Of course you never know until that emergency hits if you did the right thing. I think I'll be good though. I appreciate the response. 

      Reply Like 1
  • Contact Discover....ask for a hardship plan. They were able to give me 10% interest for 6 months. They offer lower monthly payments, but I upped mine to make some progress. FYI: They will suspend your card for an unknown amount of time. 

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