Save or Pay Off Debt?

I enjoy Daily Worth emails. Today's tip reinforced what my instinct told me and I'm working on it...

A common dilemma: Should you put all your spare cash toward paying down debt, or build up your emergency savings - or a little of both?

It's a serious question now. If you lost your job, the average length of unemployment is about 33 weeks—or eight months. That means your emergency fund must be a priority.

But should it come first? Let's run some numbers.

Your monthly expenses: $4,000
Your debt: $5,000 on a card at 14% interest
You have: $500 to apply to debt, savings or both each month.

If you stashed $400 each month in your emergency fund, and made only the minimum payment on your card—that's $100, assuming a 2% minimum payment—it would take you more than six years to build up eight months' of expenses ($32,000).

And you'd still owe about $2700 on your card.

Now let's flip it. If you put $400 per month toward your card, and $100 toward savings, you'd be debt free in about 14 months—and you'd have a tidy $1,400 start to your emergency fund.

Now that's real savings, on every front.

A family out of debt

Having reached the point of being consumer-debt free with only monthly living expenses and mortgage, I know the great feeling that comes with it. Never say that out loud! Sure enough crises hit and debt has returned. But, I know now that it is temporary. I did it once; I can do it again! Click the link to read how one family did it.

I did it!

Below: copied and pasted from my VISA account!!!

Current Account Information as of 05/19/2009
Current Balance $0.00

(I will now use only for travel and online purchases but will pay off immediately).

I have no debt except my house payment, which has also been reduced to 15 years. With any luck I'll have it paid off early!

You can achieve goals with WORK, perseverance and sacrifice. In sculpting, you just chip away at everything that is NOT what you want. Mt. Rushmore was created one chip at a time.

The difference between perseverance and obstinacy is that one comes from a strong will, and the other from a strong won't. ~Henry Ward Beecher

If we are facing in the right direction, all we have to do is keep on walking. ~Buddhist Saying


With ordinary talent and extraordinary perseverance, all things are attainable. ~Thomas Foxwell Buxton

Debt-free, here I come!

As we begin General Conference, I'm reminded of repeated admonition by the prophets to get out of debt, live within our means and prepare for the future. "Joyfully living within our means" (Elder Hales' talk worth reviewing from the Saturday AM session).

Debt and addiction (uncontrolled wants) are actually very similar. The treatment is also similar and poor decisions of the past have long-lasting consequences for the future. But, every temptation we overcome makes us stronger. I haven't always done as well as I would have liked but I'm getting better at it.
The church has a new family finance pamphlet to remind us of the principles. This can be downloaded in various languages. Click on the post title to be taken to the resource.

I'm refinancing my house - the appraisal is Monday. I'll get 4.75% for 15 years and I'm staying with my credit union where the original mortgage was because they have been great - even in the original loan when I was not in the best of circumstances; yet they gave me an excellent rate for the time - little did I know it would drop so much more in just a few years! I've spent the last four years aquiring an excellent credit score and paying other debt. My goal will be to pay it off within 10 years if at all possible so I can retire one day. Payments will be higher but it shaves off 11 years even if I can't add principle. If I do, I might shave off another 5. I should have done it before now because rates were even a little lower. I still could have reduced it by a little more by paying points but the bottom line wasn't really worth it.

I also added extra roof insulation. The Questar rebate program means I pay a total of $26 for the whole house to come to R-50 level. Of course we've been paying for this through our gas bill so if you have a home that could use the extra insulation, get what you're paying for now! My older home had extra added at some point but this will bring it way above code and hopefully help compensate for the lack of insulation in the walls - an idea they didn't really understand or appreciate in the 50s. They tell me it still helps because much of the rising heat can't escape through the roof, thus resulting in less drawing through the walls.

I have a few more improvements I'm working on. One of my two furnaces needs to be repaired - fortunately it is an energy efficient unit. We also have very hard water in Bountiful and the water softener doesn't work. I have some more windows to repair and replace. My kitchen bay was not built properly and the window has moisture between the panes with one cracked window. The roof will need to be redone pretty soon but it's not leaking now, thanks to Steve's repair work, so hopefully it will buy me a little more time.

The kitchen project is slowly coming about as I can do it. My ambition is outrunning my ability and time, I'm afraid. But, the fun is in the journey - not just the destination.