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.

Wise counsel

"Personal finance is 80 percent behavior, and getting credit cards and credit card debt out of your life is a great first step in learning to behave with your money. You don't build wealth or save money by using credit cards, and you're naive if you think you're going to play around with a multi-billion-dollar industry and beat them at their own game. The only way to win against credit card companies is by refusing to play!" ~ Dave Ramsey

Also, it's not about skin color. Syndicated columnist, Thomas Sowell has written an excellent editorial and so far he is still free to oppose the President in his writing. That IS what America is about. Click here to read it.

Another member of Congress is also working on another health care plan for reform. Click here to read.