Pay debt or keep cash on hand?

[octagon]

Because I live on a fixed income I usually only have enough money to cover my current expenses but now I have a a little more than $3000 extra so I opened a little savings account so that I don't have to keep it all in my checking account(or in my pillow). I don't have a lot of debt most of it is on one credit card with a balance of $1600. The interest I pay on this card is around 7%. I could pay it all of but that wouldn't leave me much cash for emergencies.Of the $3000 I have $900 is set aside for my sons school expenses(he starts college in 2 weeks)and $1000 is for future car repairs.The other $1100 is money I was going to use to pay down by debt but now I am thinking maybe I should hold on to it for other emergencies and just pay off my credit card from the current income that goes to my checking account. I can probably pay off that card within 8-10 months. Do you think that is a better idea?

[tyarbrough]

Just my opinion...it won't really matter in the long run whether or not you pay off the card right now. The interest @ 7% won't amount to much. If you feel better having extra cash around I would stash it.

What does matter is not accumulating more debt in the future. Is there any way you can generate a little extra income to give yourself more of a cushion? That way you could save $ AND avoid debt in the future.

Best wishes-Troy

[octagon]

Just my opinion...it won't really matter in the long run whether or not you pay off the card right now. The interest @ 7% won't amount to much. If you feel better having extra cash around I would stash it.

What does matter is not accumulating more debt in the future. Is there any way you can generate a little extra income to give yourself more of a cushion? That way you could save $ AND avoid debt in the future.

Best wishes-Troy

Thanks Troy.All of my income is from disability so it is very difficult to accumulate more.

[tyarbrough]

I understand...I have a family member in a similar situation. Best wishes,
Troy

[octagon]

I understand...I have a family member in a similar situation. Best wishes,
Troy

Thanks Troy!

[brammy]

Unless you can get greater than a 7% return on the cash (which you wont in a bank) then the thing to do is pay off as much of the debt as you can.

[octagon]

Unless you can get greater than a 7% return on the cash (which you wont in a bank) then the thing to do is pay off as much of the debt as you can.

Well the only problem I see with that is that is I have a situation were I need the cash I would have to take a cash advance which would cost more than 7% interest.

[johnallg]

Mitch, let me preface this by saying I REALLY HATE paying interest.

What I would do in your situation is save the $3000 for all the reasons you state, continue to pay off the CC as you stated, and not look back. Though $2100 is not a gold mine, it will offer you peace of mind knowing there is money for emergencies.

I wish you all the best!

[octagon]

Mitch, let me preface this by saying I REALLY HATE paying interest.

What I would do in your situation is save the $3000 for all the reasons you state, continue to pay off the CC as you stated, and not look back. Though $2100 is not a gold mine, it will offer you peace of mind knowing there is money for emergencies.

I wish you all the best!

Thanks John!

[winston]

Mitch I agree with John. But one caveat. You know how quickly money depletes if you dip into to it a few hundred at a time. Put it into a bank account where you physically have to go down to the bank to withdraw cash.

[octagon]

Mitch I agree with John. But one caveat. You know how quickly money depletes if you dip into to it a few hundred at a time. Put it into a bank account where you physically have to go down to the bank to withdraw cash.

Thanks Brian!That's were it is.I just use what I have in my checking account.

[winston]

That's the way to do it Mitch. You never know when you will need cash to make life a little more tolerable.

[johnallg]

That's the way to do it Mitch. You never know when you will need cash to make life a little more tolerable.

Or to repair a day-to-day necessity. (car, furnace, water heater, etc.)

[ram]

Usually I’d say get rid of the debt… but as noted you need a little cushion. I would suggest contacting your credit card company and see if they will lower the interest rate. Check online for others who charge less interest (watch out for transfer fees).

Another way of looking at this might be – pay off the card (leaving you with about $500) and if there is an emergency use the card….. mean while try to build up the savings again with the payment you were making to the credit card company.

Good luck with it.

[octagon]

Usually I’d say get rid of the debt… but as noted you need a little cushion. I would suggest contacting your credit card company and see if they will lower the interest rate. Check online for others who charge less interest (watch out for transfer fees).

Another way of looking at this might be – pay off the card (leaving you with about $500) and if there is an emergency use the card….. mean while try to build up the savings again with the payment you were making to the credit card company.

Good luck with it.

Thanks Tom, I have been going back and forth over whether it is better to pay of the debt or keep a cushion of cash so I turned to that oracle of wisdom the internet and found an interesting article in US News and World Report:
Suze Orman and the New Rules of Credit Card Debt