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Savings Vs Debt

December 16th, 2007 at 06:59 am

I love all the comments I've been getting. THANK YOU. So my question for all of you, "Is it better to save or pay off debt?".

I'm not paying interest on the credit card debt. I pay off the BofA card every month and the Citibank card has a 0% interest 'til 4/08. The HEL has a 7.25% interest rate.

I'm saving $300 every two weeks and have about 2 months of worth of budgeted expenses in our EF. EF is also used to pay for homeowners insurance, property taxes, etc. since I don't escrow insurance/taxes with our mortgage company. I also pay our car insurance in one lump sum. I need to make sure that I have at least $3,800 saved up for all the "big" bills.

6 Responses to “Savings Vs Debt”

  1. frugalhousewife Says:

    Is your EF two months of expenses plus the money needed for the bills? I hope so since the EF is specifically for those little things in life that go wrong. I have money set aside for emergencies. Then I took the other bills (insurance, property tax, propane, etc) and divided the amount by 12. This gives me the amount I need to set aside each month to pay that bill. This way I have the money to pay them and the EF stays specifically for emergencies.

    I think it is better to pay off debts. I know you do not pay interest on the Citibank card now, but it needs to be gone before you have to start paying interest. Then I would focus on the HEL since you are paying more interest than you can earn in a savings account.

    I see the BofA card has $3700+ charged for this month. Is that most of your bills or odd/end spending? Sorry if I am prying too much, but I love numbers and budgets. I drive my dh crazy analying our budget every month!

  2. fern Says:

    If you still have debt while trying to save, think of it as trying to drive your car with the emergency brake on. It's just going to drag down any progress you try to make.

  3. disneysteve Says:

    Since I think I'm the one that got you thinking about this, let me weigh in. I didn't realize the BoA was just this month's bill. I assumed (shame on me) that it was a balance you were carrying over. If you are paying it in full each month, that's great. Good for you.

    As for the Citi card, are you paying enough each month to have it paid off totally before the 0% offer expires? If so, that's great too.

    If both of those things are true, I would agree with saving at the same time you are repaying debt. You're paying no interest to BoA because you pay in full. You are paying no interest to Citi because it is at 0%. That means you are only paying interest on the HEL. I'm not clear what that money was used for, though. Depending on what it was for and the interest rate, I might suggest paying extra on that.

    Regarding fern's comment, I think it can make sense to save while in debt if the earnings on the savings outpace the interest on the debt. Our mortgage is at 5.875%. Our investments do much better than that, especially when taxes are figured in, so it wouldn't make sense for most people to prepay their mortgage rather than investing.

  4. lkk0718 Says:

    Frugalhousewife - You sound just like me. I love to analyze and analyze over and over again, too.

    Our BofA card has all of our expenditures on it, including utility bills if possible. We earn airlines on the BofA card and it definitely comes in handy. That's why I insist on paying this card every month. If we can't, then I'm not going to use that card anymore and pay everything with cash.

    The $300 I put into savings every two weeks includes EF and "big" bills. That balance goes up and down depending on whether or not I've got an expense that wasn't budgeted, i.e. car repairs, medical expenses, etc.

    disneysteve - Yup, you're the one that got me thinking about savings vs debt. I have always been comfortable with saving while paying down debt as long as the interest and payments aren't killing me. But, I also wondered what other people thought since there really isn't any hard and fast rule about it. I plan on paying off the Citicard before the interest kicks in.

    I'm still working on adjusting my way of thinking - no instant gratification. I can't just buy whatever I want, whenever I want. Cooking meals at home, clipping coupons, shopping sales, etc. need to become a way of life. I know that I can do it, but trying to convince DH is a different story. I'm still working on him.

  5. M E Says:


    While I completely understand the "driving with the emergency brake on" comment. I guess my question is what if you forego saving and concentrate solely on paying off debt (especially credit card debt) and some relatively major "emergency" hits? If you haven't been saving, you have no way to pay for if other than using your credit card. Which IMO, defeats the whole purpose of concentrating solely on paying off debt.

    I think you can and should do both. Try to pay as much as you can over the minimum payment (yes, I know you SHOULD pay the balance off in full . . .blah-blah-blah, but, we are talking about people who can't) and try to sock away something.

  6. Aleta Says:

    There are some financial advisors that look at a credit card as an emergency fund. Some feel that it is better to pay off debt that is costing you and is not tax deductible as opposed to savings that is taxed. It sort of puts you upside down. I'm not advocating using a credit card as an emergency fund, but it could be paid back. There are some items that you can't pay with a credit card and therefore you would need some cash savings. Paying down debt is a good thing to do.

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