My $.02 inre unemployment

RM,

I have to disagree with much of your post. Credit cards ought not to viewed as a the first source of emergency funds. The first source ought to be a 3 to 6 month cash stash for unexpected events like unemployment. Instead of concentrating on increasing credit lines when things are good, it's much more prudent to be prepared if things turn bad.
It's my experience that when people start lturning to credit during tough times, it takes forever to work out of that trap.
Good luck to all in that job search.

 

Mine too! I graduated from college three years ago with a major in a field I no longer wanted to enter (long story). I couldn't find decent employment right off the bat and worked for several months making less than $8/hr. just to get by. I was lucky enough to leave college debt-free--I went on scholarship and always paid my CC's in full--but with *plenty* of available plastic and no cash savings to speak of. At the time, that plastic seemed like a godsend. If my entire paycheck went to pay the rent and I needed food or gas, I charged it. If my 14 year old car needed repairs--again--and I had no cash, I charged it. Two Christmas seasons, charged. $400 in federal taxes, charged. And on and on. You get the idea. $13K in revolving debt later, my wakeup call came when Discover hiked my APR to 22%, MBNA lowered my CL by $3K as a form of damage control, and I could barely make the minimum payments on the 8-10 cards carrying balances. I closed and cut up about 5 of those cards and I haven't looked back. I'm still in the hole for about $10K, but I've decided to never again live on plastic no matter what the circumstance. It's tempting, for sure--just yesterday I found out I owe taxes this year and I got a $600 dentist bill, but I'll scrape the cash together by any means necessary before I'll charge those bills.

The purpose of this little anecdote was not to preach about the virtues of cash savings--goodness knows I haven't been as good as I should be about saving money--but to show how quickly those "emergency" charges can add up, and how long it takes to dig out of that hole. At my current salary (less than $30K) I can reasonably expect to be paying off this debt for another three years or so. It sucks. It has kept me from doing a lot of things I'd like to do, i.e. go back to school with minimal assistance from student loans, take some time off, etc. But, I have learned a valuable lesson and am not likely to ever forget it.

RM, best of luck in your job search. I'm looking for a new job and it's slim pickings out there!

Thanks to anyone who made it this far. I needed to get that out of my system.

 

I'm sorry but most people that carry balances on their cards (and yes theres alot of us), don't have any savings.

If we did, we'd use it to pay down our debt first.

Since most savings accounts yield less than current APR's on credit cards, it would be silly to have a savings stash of 3-6 months (10-20K CASH) and owe money to creditors..

i could be wrong.. but i think those that have 3-6 months spare cash, probably have NO debt.

 

Everyone needs an emergency fund (myself included) Lesson learned

It may seem silly at today's rates but if you are trying to pay down your debt and an emergency happens where does the money come from with no Efund?
Generally the Credit Cards and it becomes a vicious on going cycle to break

Also w/ no Efund and you loose your job how do you pay those debts & necessities?

I am trying hard to pay myself first and not throw all my excess to my credit cards.

Not everyone who has an Efund is out of debt.
I know several who have a nice fund and owe CC debt. They keep paying the debt down while not using their cards.

 

Still makes little sense to pay 9% of your credit card while earning only 2-3% on your savings.

Please explain to me how to justify this?

 

Sam

I used to agree but can't break the cycle of using cards w/ no savings
scenario:

While paying that card off @ 9%
Card 6000.00 limit 3500.00 balance
I am reducing my balance wanting to pay this off using every dollar available
then
My transmission goes out 1500.00
If I have no savings where does this money come from?
If I have to use the Card now I am back to a 5000.00 balance
I just defeated everything I was trying to accomplish
gets depressing

If I had the 1500.00 in savings @1% or 2%
I would have no savings but my card balance would still only be 3500.00 @ 9%

Depleting savings is also depressing but at least I would not have a 5000.00 balance and no savings

 

Sam,

It all depends if you want to completely rid yourself of credit card debt. If so, you want to be in a situation that if you need auto repairs or a trip to the ER or an appliance needs to be replaced then, you can pay cash and noy have to put it on a credit card. All of those things and a few others happened to me last year. In the past more than likely I would have charged them and carried a balance. This time, I paid them and went on about my business of getting out of debt. I've not charged anything to a cc that was not paid in full the next month since 12/20/00. The last cash advance I've taken was on 12/12/00. In 2001, I reduced my cc debt by 22%. Had I not had those cash cushions, it would not have been nearly that much. Now, that I've an adequaute {I hope} cash resrve, my goal is to triple the amount of debt I pay off this year as opposed to last.
The way I approach, it has to be a lifestyle change. I decided to first take out any risk that the hole would get deeper before I started filling the hole up.

 

RM,

To each there on! But, I'll bet NG and I will be debt free long before you and Sam because, we'll be {hopefully} in better position to never have to add to cc debt.

 

I think this is the key point. I tend to agree with keepmine and ng on this debate, that one should always have an e-fund going in addition to paying down debt. Good points from all, though...

 

RM,

I'm with you. I have pretty much liquidated my e-fund because doing so will make a large dent in my debt. I'm not making a big enough dent in my debt by maintiaining the e-fund. Why should I have a 10-15k e-fund, and have as much debt as I do. It would save me money in the long run to pay that 10-15k on my debts, even if an emergency came up later.

I have calculated that by doing this, I should be able to get out of debt in about half the time, even though my e-fund did not even come close to equaling half my debt. I'm shaving off years of paying debt by doing this.

 

Know i'm still confused.

Please show me your computations over a given
period of time that you will save money by not retiring debt.

I'm terrible at math believe it or not, so lay it out to me.

over a period of say 36 months for example.

I'm open to hear your suggestions, but my pre-calculus experience in math does not logify what you guys are saying..

 

"If you didn't have any debt, how much would you really need to live?" See http://www.stretcher.com/stories/00/000724c.cfm

I believe that paying off debt comes before savings, and savings comes before investing.

However, no matter how bad the debt, you should have 1 to 3 months' worth of expenses saved. Even 1 month's worth of expenses is better than nothing, especially if you have a very old car or are in poor health. Then aggressively pay down the debt.

If you are laid off, guess what ? You still have installment and credit card debt payments on top of paying for necessities! So if you aggressively retire the debt, you are less worse-off in case of a job loss, illness or whatever.

 

Sam,

You can't quantify the importance of an E-Fund {at least in my mind}. I'm determined to become debt free. And, the best way I know to do that is to make certain I never have to charge anything again.
Here's what has happened to me in the past 12 months:
Mar of 01-$400 for a hot water heater
May $ 350 car repair
Sept $505 ER {our portion after decductibe and copays}
Oct. $120 ER trip to the Vet
$155 next day furnace repair
Jan 2002 $680 4 year old comptuer dies.
I was able to write a check for each one of these items and, I also have 6 months worth of expenses in the bank.
I'm getting off the credit merry-go-round for good and the only way I know how is to get myself in a position where I'll no longer have to charge. Now, I can aggressively pay down cards because I know I have enough {again hopefuly} to take care of unforeseen expenses without pulling out the plastic.
Anyway, some good post from all viewpoints. This approach though, will work for me.

 

I have a spreadsheet that shows all my expected income, expenses, debt payments, debt balances, etc. for the next 4 years. If I had not liquified my e-fund, then at the end of 4 years, my cc debt would not be paid off. Now, my cc debt should be paid off in about 3, leaving that 4th year to concentrate on my student loans.

I'm sorry, but my spreadsheet is too personal to share with anyone.