Week 1, Question 2
Well, now we’ve got a budget together we can see that debt is sucking up a lot of our income.
We’re going to follow up the ‘biggie’ (our mortgage) soon, but in the meantime there’s the small matter of Matt’s credit card. It’s currently got $1800 owing on it and we’re only paying just over the minimum each month.
We might have an easy solution to this one, though. Our budget doesn’t show it, ‘cos we’re no longer putting any money into it, but we do have a $2500 savings fund for emergencies (in case the roof needs fixing, that sort of thing).
So what do you reckon? Should we pay off Matt’s credit card with our savings - and have one less debt to worry about - or keep all of our emergency fund for a rainy day?
Thx, Steph
posted by sortme @ 7:04 AM
1 comments
1 Comments:
Pay the debt off first. Tackle the debts with the highest interest first. Savings mean nothing if you have debt. eg. the interest you make off your savings might be 6% p/a but the interest you pay on your credit card will be approx 18% p/a and that is for purchases only, not cash advances that you would use in an emergency, where the interest is usually calculated daily. Once the credit card is paid off, return the card to the bank but keep the account open in case of an emergency. The payments that you would usually make on your credit card can then go into savings and once you are comfortable with the level of savings you have, you can cancel the credit card.
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