Save or Pay Off Debt?
By zieglerzoo | Leave A Comment
By zieglerzoo | Leave A Comment
Yesterday, financial guru Suze Orman was a guest on the Oprah Winfrey Show to share her 2009 action plan. I personally am not a huge fan of Suze’s but I do think she has some good points. One point Suze made was to “pay off credit card debt BEFORE creating a savings account.” This brought up several questions in my mind.
- If you follow this guideline, what happens if you have an emergency? You would have to incur more debt, thus putting you in worse position.
- What if you have a child nearing college? Should you try to save some for him/her?
- Wouldn’t saving, even a little, add some sense of security and sustain your momentum for paying off debt?
- What are your thoughts? Do you save some before paying off credit cards?
Photo by Andres Ruedas
Janet is a mom, wife, and teacher. She and her husband are on a quest to “happen to their money” rather than “let their money happen to them.” She can be found blogging about hot issues at educate, empower, enjoy or keeping up with her crazy family at ZieglerZoo.
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ABOUT zieglerzoo
Janet is a wife, mom, and teacher. She keeps busy teaching special education, chasing her son, cheri{read more}
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Go here & check out Dave’s advice. He’s the “guru” IMHO.
http://www.daveramsey.com/etc/cms/index.cfm?trk=qf&intContentID=2926
I think Dave Ramsey’s advice resonates most with me on this subject. So, I think it best to save $1,000 and then start paying off debt. However, if you’ve got a disaster looming, stop paying off the debt and save like crazy.
I read an excellent book by Dave Ramsey, called ‘The Total Money Makeover’. He suggests that you save up $1000 to be used in emergencies BEFORE paying off your debts. That is what my husband and I have done, and what I would recommend. You don’t want to be caught in an emergency with nothing to fall back on.
wow, I didn’t see those other comments before posting mine. Dave Ramsey is right on the money!
Suze’s advice is not good in today’s lending market. With credit card companies arbitrarily lowering credit limits, closing cards, etc… who’s to say that the card you just paid off will even be available for an emergency should you have one? That is a huge risk.
I advocate (initially) Dave Ramsey’s advice: $1000 emergency fund then start paying off debt. With that said, for every 6 months it’ll take you to pay off your debt, I advocate adding another $500-$1000 to that emergency fund. So basically, every 6 months add another $500-$1000 to that emergency fund, even if your debts are not paid off.
The longer your debt payoff takes, the more likely you are to have bigger and/or simultaneous emergencies. Also, if you are self-employed, chunk that fund up even more.
Good thought to Christina–seems smart if you’re going to take quite a while to pay off your debt to continue to add something, however small, to your emergency fund on a regular basis.
We’re going to use our tax refund to pay off debt (which we ran up this last year, with our move), and build some savings, both. But with the ridiculous amount of interest on the credit accounts, you are paying out SO much for things over the length of time it takes to pay off the debt…no thanks. I’ve paid enough, tyvm. Pay them off, cut them up, and then everything else, into savings.
I agree with Dave Ramsey, start an emergency fund with $1000 then pay off debts.
My husband and I have different thoughts on this issue. I would feel more secure having some savings and my husband would rather pay off all credit card and then start saving. As a compromise we have agreed to save a small amount every month and put the larger chunk of change towards our credit card debt. If we continue on our plan and use our tax return we should be able to be completely free of credit card debt by June.
First let me say I don’t like Suze much either, she is way too aggresive. My husband and I are a really new family, (2years) so we have not really made a significant dent in out debt, (about $5000). We were planning on just putting it all towards paying off our debt, but I really like Dave’s advice. After reading this, I am going to save 1000 and then put the rest towards the debt.
I am a fan of Dave Ramsay’s Baby Emergency fund for the scenario you raise – preventing further debt in an emergency. However beyond this to me, it makes no sense whatsoever to be saving before or while paying down debt.
Interest rates on savings accounts are so low – and credit card/autoloan rates are significantly higher – you are losing money by saving at a lower rate than you are paying on your debt.
The common sense approach for me is to have that emergency fund in reserve and then throw every remaining cent you have at your debt to pay it down asap.
The bigger key in all of this is behaviour change. Once that debt is paid – don’t rack it up again. Then you have time to save, and save effectively.
I’m a Dave Ramsey fanatic, so I fall in the category of “get an emergency fund… NOW!” He says to save $1000 fast and first. That makes a lot more sense to me than to spend the next few years hoping and praying for no emergencies while you pay off your debt.
Thanks for this quick tips,about debt,btw you should check your site in Opera.