Greetings! I have about $9,300 of credit card debt. I transferred $5,000 to a “no interest for 21 months” card a few months ago to try and save on some interest. My original card has a 10.7% APR. I’m paying twice the minimum due each month on both cards (~$200-$300/month) and I’m not using them for new purchases.
I also have $15,000 student loan debt accumulating interest but it’s in forbearance, basically. I was hoping to deal with that after I get the cards down to ~$1,000. I could possibly qualify for PSLF eventually, but it’s been too overwhelming to figure it out. This is all of the debt my spouse and I carry.
My spouse and I have been putting ~$200/month into savings.
Anyhow, I got a promotion! This means an extra $400-$500/month. I’m not sure of the best option:
1) use the new income to pay the credit cards down faster, without saving any money for emergencies (making ~$600-$700 payment each month)
2) split the new income, saving half and then adding the other half to my monthly card payments (~$400 card payment and $200-300 for savings)
My spouse and I only have $1,200 in savings, basically no retirement, etc. We’re in our 40’s and really working on our finances and narrowing down our expenses and budget. I’d love some advice about the best way to approach this situation. Thank you!
Pay off credit card faster and stop saving for emergencies?
byu/addledeyes inpersonalfinance
Posted by addledeyes
3 Comments
Emergency fund is priority number one. Minimum 3 months take home pay. Then tackle the debt
Credit card debt is an emergency. Pay it off aggressively. Playing shuffle-the-debt doesn’t make it go away.
Once that’s done, rebuild your emergency fund. In today’s job market, I recommend 12 months worth of expenses.
And stop standing on the sidelines and get going on funding your retirement. You aren’t getting any younger.
Finally start living within your means so that you don’t end up back in the same high-interest place.
Whatever you choose to prioritize or budget towards the credit card debt, pay the minimum on the 0% card and everything else against the 10.7% card. This is called the Avalanche Method and is how you minimize the additional interest costs.
Paying double the minimum on both cards is costing you more because the extra money going towards the 0% card could have been used to further reduce the 10.7% balance that’s accruing interest.
Once the 10.7% card is paid off, then swing that portion of your budget towards the 0% card and finish knocking it out. Just be certain you get that 0% balance paid off in 20 months.