What to do with my tax return? Credit Card Debt or Emergency Savings
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Anonymous
| I have $15,000 in credit card debt that is at 19% interest rate. I have a 401K but no emergency savings other than a personal line of credit that I can access at 25% interest. I have $6000 from my tax return. Should I put all of that on the credit card to pay it down (already tried transferring to lower interest credit card but was only approved for $3200 at 0% interest) or just a portion towards credit card and the rest in emergency savings? Are there other ways to spend the tax refund to get ahead financially? |
Anonymous
| If you genuinely have zero dollars in emergency savings, put $500-$1000 aside for an EF. But send the rest to the credit card debt. |
Anonymous
+1. Save just a little and put the rest towards the cc. |
Anonymous
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If you have absolutely nothing in emergency savings, I would take that tax return and spilt it. Put $3000 into savings and put the other $3000 toward your credit card debt.
Does $3000 cover your mortgage/rent and car payment for a month if you lose your job? Tweak that number a bit so you can cover at least a month. What is your plan to pay off the rest of the debt? 19% is crazy high. |
Anonymous
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I agree to put most of it towards the cc debt. Some other thoughts.
What is your income? If it's high enough you may qualify for a personal loan to pay off your cc debt. Are you a member of a credit union (if not- definitely join one!!)? My sister just consolidated 25,000 of cc debt at 8.5% interest at a credit union. The key I'm sure you know if to stop using the credit cards if you go this route. (but do not close the accounts- that will hurt your credit score) If the personal loan doesn't work, is the debt all on one card? Have you tried calling them and seeing if they'll lower your rate. You'd be surprised how often they will work with you if you show good faith. |
Anonymous
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Put $1000 in savings for emergencies.
Put $5000 toward the cc debt, reducing your debt to $10k. Call the credit card and see if they will reduce your interest rate on the $10k that will remain. Transfer the $3200 to the 0% interest card so at least you're not paying interest on that amount. Then pay the minimum on the $3200 at 0% interest and put as much as you can toward the $6800 that you will have left on the card you have to pay interest on. Do the Dave Ramsay snowball. Keep an eye on the expiration date of the 0% interest card. When it is soon to expire, open a new 0% interest card and transfer whatever remains, plus some more from the interest accruing account to the new card. I just kept paying and transfering to new 0% interest accounts until my debt was finally gone (last year). It's a HUGE feeling of relief and accomplishment when you're working on and achieve this. 
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Anonymous
Agreed. In addition, if you are getting a $6K tax return, you need to adjust your withholdings so that you get much less back at tax time, but your paycheck is bigger each month. At $6K, you should be taking home about $400-500 more a month or $200-250 biweekly (depending on how you are paid). But, do not change your current spending habits, apply that money every month to your CC debt. In addition to paying back the debt, you will also significantly decrease your interest payments by paying monthly instead of once per year. And as less goes to interest, more will be slowly going to pay down the debt every month and you will pay off the debt faster. |
Anonymous
| Presumably if you have an emergency you can just add more debt to that existing cc? If so, then put the whole 6k towards that. No sense saving for a future emergency when you haven't paid off the last one yet. |
Anonymous
| Id get a second job and put wvery extra penny to cC debt. |
Anonymous
| Beware of paying off cc debt and thinking now you can start charging things. Live within your means from now on! |
Anonymous
Not op, but you never know someone's circumstances to make blanket assumptions. I had $10K of credit card debt happen to me in my 20s when an expensive medical issue came up suddenly requiring surgery (more than 10K) that was not covered by insurance. I had been working for a few years, living well within my means while saving and saving for a house. A month after moving into the house this happpened. I still had some savings left over after buying the house, and yes, we qualified on one salary only in case someone loses their job. Stuff happens. Luckily, we were able to pay it off in a year. To answer the op question, we used the $5K tax return (finally after years of always owing $4K), and put $4500 on credit card, and $500 in savings. Good luck op! |
Anonymous
| Someone like you OP is desperately in need of Dave Ramsey's baby steps. |
Anonymous
Agreed. Op, check out some Dave Ramsey podcasts, and get his "Total Money Makeover" book. You're exactly the kind of person he talks to. His plan will help you. |
Anonymous
Put your refund toward your credit card, but only you stop charging it. Otherwise, you will return to where you are. |
Anonymous
| I am using my tax return to pay of CC debt. But I do have emergency savings. I agree with other posters - put some amount in savings and the remainder to CC. |