Comments on: Should I Pay Off Debt With Savings?

By: How Much Is Debt Costing You in Opportunity? | Frugal Dad

How Much Is Debt Costing You in Opportunity? | Frugal Dad — Thu, 30 Oct 2008 11:00:39 +0000

[...] this week I retired an old debt consolidation loan that’s been hanging around so long I thought it was a pet (to borrow Dave Ramsey’s [...]

By: Rob in Madrid

Rob in Madrid — Wed, 22 Oct 2008 06:22:55 +0000

I am firmly in the savings first camp for the simple reason the more you have in the bank the less likely your are to spend!

Secondly a large part of our recent problems were due to a lack of savings, when one has no savings one much use CC debt for emergencies!

By: Andrea

Andrea — Thu, 16 Oct 2008 03:34:55 +0000

I’m with you. We’ll be taking some savings to pay something off when we get close. It will just give us more motivation. Great post!

By: Dave Farquhar

Dave Farquhar — Wed, 15 Oct 2008 02:31:41 +0000

Don’t empty the emergency fund to pay down debt, or even to pay it off. Raiding it for a couple thousand might be worth it if it allows you to pay something off a month earlier, but keep some buffer and build it back up as quickly as possible.

Why? Look at my experience. The month after we paid off the house, the air conditioner died. Then we had a broken tie rod on one of our cars. And then the hot water heater died. Three months, three big emergency expenses. Fortunately, I had built up enough in the emergency fund to cover all of it.

I’m not saying it will happen to you. But the risk is paying off a few thousand dollars remaining on a 6% mortgage, but then getting stuck having to finance emergencies at 19% before you had a chance to build that fund back up. I don’t think it’s worth it.

By: Mary@SimplyForties

Mary@SimplyForties — Tue, 14 Oct 2008 01:51:55 +0000

I listened to Dave Ramsey’s podcast this morning and he told someone to use the $17K they have in savings to pay off 1/2 of the their debt. I would be very leery of cleaning out a healthy savings account to pay off my debt. If you use all your savings to pay off your credit cards and then have an emergency, you have to charge your cards back up again, this time with no savings. I’d ramp up my debt repayment but I sure wouldn’t clear out my savings. I think you’re going about it the right way.

By: Marci

Marci — Mon, 13 Oct 2008 22:17:57 +0000

And CONGRATS!!! on crossing another debt off your list! WHOOOHOOO!!!!

By: Marci

Marci — Mon, 13 Oct 2008 22:16:59 +0000

Sounds like you have found the compromise that will work for you… pay off one loan, free up that monthly payment money, and still have the comfort zone of the emergency $$.

When I was in that position before, I would ask myself…What is the worst possible scenario that could happen moneywise? and the answer to that would give me my course of action.

In your scenario, if ALL the income were to cease, which way would you be better off cash-flow wise? For me, it would be to keep the emergency fund intact for that emergency that was happening, and pay the minimums on the credit card. If one pays off the card, the emergency $$ would not be there when the income ceased.

However…. your compromise does the same thing. Plus will give you that extra cash flow Great choice!

By: Lorie

Lorie — Mon, 13 Oct 2008 20:27:52 +0000

Ever hear of Dave Ramsey (www.daveramsey.com). He’s a financial advisor in Tennessee who has a syndicated talk radio show. He tells people to use the baby steps. Step 1: $1,000 mini emergency fund. Step 2: pay off all debt, smallest to largest, except for the house, as quickly as possible, gazelle intense. Step 3: finish the emergency fund of 3-6 months of expenses. There are 4 more steps but these are the biggest & hardest ones. You should check him out.

By: Ron@TheWisdomJournal

Ron@TheWisdomJournal — Mon, 13 Oct 2008 19:59:58 +0000

I guess I would recommend keeping the savings account intact. You know how much your debt payments are. You know you’re not going to increase your balances. What you don’t know is what little (or big) emergency is waiting around the corner. So long as you’re able to hack away at your debt on a consistent basis, you have that cushion in case things go south. There’s nothing like having some cash available when you need it.

By: Elliott - 21st Century Dad

Elliott - 21st Century Dad — Mon, 13 Oct 2008 19:54:03 +0000

The money you were using each month to pay down the debt can be re-routed to your monthly contribution to the emergency fund, right?

We often operate under the assumption that monthly line items in our budget continue to exist. I make this point every time people want to justify maintaining a newer car vs. keeping their existing vehicle. No monthly payment = $3-400/month you can stash toward the inevitable repairs. People work under the assumption that the monthly car payment still exists.

All of you here with a used car have heard it, “oh, but what about this, and that… $200 here, $100 there, $500?!” I’ll take that instead of a monthly hit of $300 !