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