I’m really struggling to decide whether I should put all my extra money toward paying off debt or split it evenly between debt repayment and savings. I work in ad tech and got laid off last year while trying to pay off my debt, which left me with almost no savings and caused me to accumulate more debt just to get by.
While I don’t feel an immediate need to panic, there have been ongoing layoffs in my industry, and it’s a frightening prospect to have no financial safety net. Right now, I have $3,000 in savings and $20,000 in credit card debt, with an annual income of $90,000. My emergency fund can cover about two months of rent and utilities, but it’s not enough to cover my minimum debt payments on top of that. I’m considering whether having a larger cushion in my savings during this uncertain job market would provide me with more peace of mind, even though my debt situation is urgent as well.
I have an extra $2,400 each month after covering rent, utilities, health insurance, and car insurance (I bought my car in cash, so there’s no car payment). I’m thinking of allocating $1,250 a month to debt and the other $1,250 to savings. What do you think?
Does the $2,400 you have left over include expenses for food, gas, and miscellaneous items, or have you not factored those in?
I think the half-and-half strategy is a solid choice. This way, you’re paying down your debt while also saving in case of a layoff, reducing your reliance on credit cards when you apply for unemployment, which can take some time to process.
To help pay off your debt more quickly, you could consider several options:
- Sell any items you no longer need or use on platforms like Facebook Marketplace or other free listing sites to earn some extra cash.
- Sell plasma for additional income.
- Look into a hardship program where you pay your creditor but they lower your interest rate for a set period, though they may close your account in exchange. Note that not all creditors offer this, and some may only work with non-profit debt management or credit counseling services.
- Consider taking on a second job.
I would strongly recommend paying off your debt. I’m not saying you should spend every dollar on it, but rather allocate $1800 to $2,000 against your debt and save the rest. How secure you feel at your current employment is how I would base it. Once your funds have increased over a few months, you could choose to take on a little more debt in order to reach your goal sooner. It’s possible that you may pay off the loan in 12 to 14 months. I wish you the best of luck.
This! Undoubtedly more in the direction of credit card debt. Such interest rates are really high. It makes no sense to collect 4.25% interest on a tiny savings account while your enormous credit card bill is coming due at 28%.
Without a doubt. Although we all know interest rates are meant to keep you paying for life, the original poster neglected to disclose the interest rate or the number of credit cards he owes on.
If you wipe off your debt and accumulate an oh-shit fund, you will be able to cover your monthly expenses without taking out new loans or falling behind if you lose your job. Go all out to pay off the loan after you have sufficient funds in the e-fund.
Savings for one more month’s expenses. Was the amassing of CC debt a one-time event? What is the interest rate, and is it possible to pay it off with a personal loan or consolidation and then make fixed monthly payments?
The average market return on savings is 11%, therefore any debt that exceeds that amount should be paid off before investing.