I’m 30, have a decent job making mid-80s, and get a yearly bonus. This year, it’ll be about $8k after taxes. I’ve got some credit card debt: $2,500 on an Apple Card, $3,500 on an AAdvantage card, and $5k on a Venture One card.
The bonus won’t clear all the debt, but it could make a big dent. The problem is, I don’t have an emergency fund or savings (I know this is bad). I was thinking of putting $3k toward the debt and saving the rest. I could then pay the remaining balance over six months with $1k monthly payments. Does this sound like a smart plan?
What about paying most of the debt with your bonus, then using the monthly payments you’d have been making to build your emergency fund? Do you have a 401k set up? Once your debt is gone, you could start contributing to that.
@Darby
That’s what I did before. I skipped building the emergency fund at first and focused on paying off debt. If there had been an emergency, I would’ve used credit again, but luckily nothing happened. It worked out, and I cleared the debt quickly.
Set aside $1k as an emergency fund. Use $5k on the Venture One card and $2k on the Apple Card. Pay off the rest of the Apple Card next, then tackle AAdvantage while adding to your savings.
Think of your credit card balances as the emergency fund you already spent. Pay down your cards now, save $1k for emergencies, and work on clearing the rest faster than six months.
Use the whole $8k on the debt. If something comes up, you can use your credit cards. Waiting six months to pay it off will cost you hundreds in interest.
Pay off the cards with the highest interest first. Don’t worry about saving until your debt is gone. If there’s an emergency, use a card temporarily, but stop adding new charges.
Pay off the debt with your bonus, then act like you’re still making payments by putting that money into savings. Keep the cards for emergencies, but don’t use them unless absolutely necessary.
Start with $2k in an emergency fund, then use the rest to pay off your highest interest debt. Once you’re out of debt, focus on saving 3-6 months of expenses.
You’re basically renting your emergency fund from the credit card companies. Pay off the cards entirely, stop spending unnecessarily, and save the next bonus you get.
Treat your credit cards as your emergency fund for now. Pay off the highest interest cards first, then use what you were paying toward debt to start saving.