| paying off debt or having an emergency fund? |
|
|
|
|
|
| What should I do? |
| Keep the emergency Fund |
|
0% |
[ 0 ] |
| Pay off the cards |
|
100% |
[ 1 ] |
| Other (explain in comment) |
|
0% |
[ 0 ] |
|
| Total Votes : 1 |
choosiechoose
New Member
Cash: $ 0.85
Posts: 4
Joined: 04 Sep 2012
Location: NYC
|
| paying off debt or having an emergency fund? |
 |
|
Hello everyone this might be a dumb question but Im not sure what is right for my family to do in this situation.
Because of past job loss and situations we have almost $20,000 in credit card debt. The payments we make per month are $1,000 towards repayment, one of the cards with a balance of 14,000 is a 10% interest the other card at 5,000 is no interest until next summer. Because we make large payments to repay these 2 cards we find ourself still using the cards sometimes.
Heres the stupid thing. We have a $20,000 emergency fund. I am scared to use it to pay off the cards because then we have nothing.
Our mortgage is $2500
or combined income is 120k
it wasnt always 120k, infact its only been that high since the end of 2011, before that it was half hence the use of credit cards.
our other bills are car insurance $200, utilities $300, groceries $500 Student Loan $200
we are a family of 3 with a small child.
should I just cave in and pay off the cards?
|
Tue Sep 04, 2012 4:05 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
|
|
|
How is the big picture - ie, we see that you have $20k cash and $20k consumer debt, they balance so they contribute zero to your Net Worth. But you are paying $2000/year to borrow your $20k EF.
Big pic - the house note must be ihn the $400,000 range? And the SL must be $20,000 or so? Any thing else - car loans, leases? What are the interest rates on the loans?
But the good news is the $120,000 income stream - and it is split so the probability of losing the whole $120k/yr at one time is low. With that solid income, you can fix most other problems - ie, $20k is about 16% of a year's income, kinda small in the scheme of your lives. I would probably make certain that I had at least two 'clean' cc's for emergencies - and then use $10k to prepay debt.
But at your age and income stream - a far more important metric than that $20k debt is "investing". Eg, if you invest $12,000/yr of that $120k into an 11%/yr fund, that will be $2.6M in 30 years. If you use a 401k with a match, it be $3.9M, and the $12k cost will be only $9600/yr out-of-pocket.
|
|
Tue Sep 04, 2012 5:25 pm |
|
|
choosiechoose
New Member
Cash: $ 0.85
Posts: 4
Joined: 04 Sep 2012
Location: NYC
|
our car is paid off and we are 33 and 28 years old.
|
|
Tue Sep 04, 2012 5:39 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
quote:
our car is paid off and we are 33 and 28 years old.
Gtreat! If you make that Family Plan your priority (pay yourself first), then you can enjoy spending the rest of your earnings with no guilt, knowing that you are on track to have $4M at age 63. And a $20k cc bill will be of almost no concern to you. 
|
|
Tue Sep 04, 2012 6:37 pm |
|
|
littleroc02us
Moderator
Cash: $ 384.35
Posts: 1891
Joined: 09 Feb 2009
|
Since you know that the worse case scenario can happen with a job, you understand that mathematics doesn't always work out because it's hard to equate risk. (Risk of losing income that is) I would take 19k and pay off most of the cc debt. Then within a month you should easily be able to pay off the rest of the debt. You can easily build up 19k within a year and then IMO your off to the races with a secure base and can easily invest that 1k each month for the next 30 years with a moderate return of 9% you would have 1.7 million.
Risk comes from not knowing what you're doing. (Warren Buffet)
|
|
Tue Sep 04, 2012 7:48 pm |
|
|
choosiechoose
New Member
Cash: $ 0.85
Posts: 4
Joined: 04 Sep 2012
Location: NYC
|
the savings we have now is just sitting in ING at .8 percent. Where can I find these 9% funds you speak of.
You guys make me think there is hope for us!
|
|
Tue Sep 04, 2012 8:03 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
quote:
Where can I find these 9% funds you speak of.
I use the SP500 Index Fund for most things - our IRAs. Roths, and our Taxable Fund. The return was 11.55%/yr fro the most recent 30 yrs, ending July 31. Look up various 30-year blocks to get a feel for the longterm return, usually it was double-digit. But remember, this for your longterm investing - 5 years form now it could be lower than now - or up 100% - and it cannot be predicted, it is driven by the fluctuations of the Free Market. But over long periods, statistical averaging occurs, at 15 yrs, 25 yrs, etc, your personal return starts to converge on about 11%. Statistically, your 30-year probabloutcome is far more predictable than your 5 or 10 yr outcomes.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
|
|
Tue Sep 04, 2012 8:29 pm |
|
|
choosiechoose
New Member
Cash: $ 0.85
Posts: 4
Joined: 04 Sep 2012
Location: NYC
|
So pay it off?.... then put that 1,000 extra into a high yield savings...
|
|
Wed Sep 05, 2012 3:37 pm |
|
|
|
