Rainy Day Fund Vs Paying Off Debt
If you do not already have a rainy day fund set aside, it might be more beneficial to add your disposable income to such an account. A rainy day fund is generally used to cover unexpected expenses and can be invaluable in the event of a job loss.
Paying off your debt, such as a credit card balance, is not a practical substitute for a rainy day fund, as the credit card company can reduce your credit limit.
Pay Off Any Credit Card Debt
If you’ve been carrying balances on any credit cards, now is the time to start chipping away at them by paying more than your monthly minimums. Eliminating this debt is important so that you don’t get stuck on a high-interest treadmill.
What if you’re carrying a balance on more than one card? In that case, focus first on paying off your highest-rate card, followed by the second highest, and so on.
Still Want To Drain Your Emergency Savings Here’s A Compromise
The MIT study mentioned above had one piece of salient advice for folks who have a history of questionable financial habits: always leave home without your credit card.
If you still want to drain your entire savings fund to pay off your credit cards more quickly, at least leave the credit card at home so you can’t use it impulsively. If you really want to make sure you stay disciplined, try freezing your credit card — literally. Put it in a block of ice in your freezer. That way, if you ever think you need it, you have to let that block of ice thaw before you can use it, and you’ll have to spend that whole time ruminating on whether or not the purchase you’re about to make is truly necessary.
In the end, the decision comes down to financial discipline. If you’re sure you have it, then go ahead and put 100% of your savings toward your credit card bill. But if it turns out you don’t have the discipline, and you start racking up debt once again, you could end up losing a lot more in the long run.
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How To Avoid Interest Charges
Your credit card company doesn’t immediately apply the accrued interest charges to your account after your credit card billing cycle ends. Instead, most credit card issuers offer an interest grace period that runs from the final day of your billing cycle through your payment due date.
During the interest grace period, the credit card issuer will not apply interest charges to your account. If you don’t pay off the balance in full by the due date, the credit card company will charge you interest on the unpaid balance.
With some credit cards carrying interest rates in the mid-20% range, the charges can be significant.
Strategies To Help You Pay Off Your Credit Card
By Keph Senett on September 11, 2020
Who doesn’t want to pay down credit card debt? Following these tips can help you bring your credit card balance down.
Credit cards have become ubiquitous, used to pay for everything from gas to travel to home delivery. Managed properly, theyre also essential financial tools, allowing cardholders to build credit, earn cash back or travel points, and gain valuable perks, like insurance or purchase protection. Carrying a balance, however, changes everything. Credit card debt is very high-interest debt, typically in the neighbourhood of 20% or more, says Scott Hannah, president and CEO of . At that rate, even a modest balance can spiral quickly out of control.
If youre holding a balance on your credit card, paying it off is task number one, so you can once again enjoy its benefits. Here are 10 solid tips to help you get to a $0 balance, faster.
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Can’t Help In An Emergency
A critical personal finance goal is to save an emergency fund that can support you for 3-6 months, but this can take some time to build up. During the ramp-up time, many people rely on credit cards for emergencies.
If you continually carry a high balance on your credit card, you may not have enough credit available if an emergency strikes.
Avoid Debts Piling Up
The minimum payment on a credit card is the lowest amount a customer can pay. Although keeping up to date with payment deadlines should be the priority, its advantageous to avoid getting stuck in a cycle of just paying the minimum every month.
Carrying credit card balances forward can make it difficult to clear debts, especially if youre spending more at the same time as paying the minimum amount. As your balance increases, the interest fees will rise, and you could get into a spiral.
You might find that your debts pile up to a point where you cant make a significant dent in the balance. If you have the funds available, its best to try to clear your balances as soon as possible.
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Whats My Job Situation
If you dont feel secure in your job, prioritize emergency savings. Thats because if you aggressively pay down debt, then lose your job, you still don’t have any money even if you have no debt, which leads to more card use, and added debt, Gorelick said. If you have savings, that can help prevent too much credit card use in the event of a layoff or shutdown.
Christensen agreed, pointing out that having some savings gives you a little more breathing room when job hunting. The worst thing that can happen when you lose your job and have no emergency savings is feeling like you have to find something, anything, he said. You end up in a lower-paying job. Later, when you try to get the type of job you had before, future employers wonder what happened when they look at your resume. Its a tough situation to be in.
On the other hand, saving could be a no-brainer if your employer matches the contributions or a portion of the contributions that you make to your 401. With a 401 match, you are getting an instant return on your money. Think of it as a bonus or a pay raise. It’s easy money. So save at least up to the amount your employer will match, typically anywhere between 3% to 6% of your salary. One exception to the rule is if you plan on leaving your employer prior to being vested in those matching contributions.
Financial Literacy : Save First Or Pay Off Debt
If youre new to managing money, its hard to know where to begin. Should you save first or pay off debt? Should you build an emergency fund? Debt is very emotional, so its easy to feel pressure to become debt-free. Yet breaking bad financial habits and building savings can help alleviate financial stress too.
How do you know if you should pay off debt or save cash first? It sounds like a simple question, yet the answer isnt always clear.
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Effective Habits To Embrace In Parenting
To be an effective parent, you must be a leader in your childs life, guiding with a gentle hand and setting a solid example. Dr. Randy Schroeder provides the insight you need to be a leader-parent. As he explores the foundational Rsrelationship, routines, responsibilities, and rulesyoull better understand the role you play in your childs life. Youll learn great phrases to employ such as Either/Or/You Decide and When You/Then You. While there is no perfect parent, this nuts-and-bolts material will equip you to lead your child in a loving, confident manner.
Banks Love Us To Save And Have Debts
Put most simply, when you save money you’re actually lending your cash to the bank for it to lend on to other people. The difference between the rate at which it borrows money from you and the rate it charges others is its profit. Therefore, on the whole, it’ll always cost more to borrow than you can earn by saving.
This is why I find it deeply frustrating that many people have both borrowings and savings at the same time, often with the same bank. Essentially the bank is lending you back the money you lent it, except charging you much more.
Think about this, it’s actually quite shocking. I once made a speech to the Building Society Association conference, which was puffing out its chest at how much better than banks they were.
So I asked how many of their savings managers’ salaries were based on the value of savings they brought in. Many were. Then I questioned how many got the branch staff to ask people opening savings accounts if they had debts. Not one!
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Finding A Balance That Works For You
The problem for many Americans is that their debts are so significant compared to their monthly income that it will take many years to pay the balance down to zero. While it might be tempting to simply postpone saving while youre paying off debts, that often isnt a realistic option. Even families with high debt want to be able to purchase a home, have a child, pay for college or provide support for ailing loved ones and that requires substantial savings.
The key, then, is to find the balance that works for you and your family, agree on a plan and stick with it. Our recommendation is to prioritize paying down significant debt while making small contributions to your savings. Once youve paid off your debt, you can then more aggressively build your savings by contributing the full amount you were previously paying each month toward debt.
Start Rebuilding Your Emergency Savings Account
The single most important financial tool to have in your back pocket is an emergency savings fund. Having even a small nest egg saved can spare you from detrimental impact to your credit score due to collections, or help you avoid the burden of interest charges from credit card debt. Just one quick trip to the hospital could severely ding your credit score if your credit limit isnt high. Imagine having to run to the ER with your $3,000 limit credit card. The average cost for a non-emergency visit to the ER is $2,000, leaving you with 66% credit utilization once youve paid the bill.
Americas most trusted personal finance expert, Suze Orman, suggests having 8-12 months of emergency savings before aggressively paying off debt. Rebuilding a years worth of expenses can feel overwhelming at first, but Orman reminds anyone starting from scratch, Millions of people had to use their emergency funds over the past year, and now is the time to start over again youre not alone.
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Saving Vs Paying Off Debt
If you have outstanding debts and find yourself with disposable income, you might be conflicted about whether to save that amount or allocate it towards paying off your debt. Giving careful consideration to the pros and cons of both options can help you to make a practical decision.
The following are some factors that you can include in your .
Moms Raising Sons To Be Men
Mothers of boys have the special calling to shape future men of God. Popular speaker Rhonda Stoppe, mom to two sons, knows this opportunity is a challenge, a joy, and probably the most important work of a womans life. Drawing from years of experience, this inspirational resource will revive the faithfulness and fortitude a woman needs to partner with God as they shape the character and heart of a future godly man.
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Identifying Triggers In Your Marriage
They were both convinced they had married the wrong person. From almost the very beginning of their marriage, Amber and Guy Lia experienced various tensions and personality clashes related to house cleaning, backseat driving, workaholism, and intimacy. In this two-day Focus on the Family broadcast, Amber and Guy discuss how they bravely faced the triggers head-on, and committed to working on their own relationships with Jesus. As you listen to the Lias story, youll feel hope that you, too, can see real marriage transformation!
Avoid Paying More In Interest And Fees
If you have a balance on your credit cards, you may be paying interest, and there could be additional fees or charges to cover if you fail to meet a payment deadline or pay the minimum monthly payment. The higher your balance, the more youll pay in interest. One of the primary arguments for paying your balances in full is to reduce the total cost of borrowing money. If you find yourself in a situation where youre using your credit card more frequently, interest fees can creep up, and the increased cost of paying off your credit card can make it more difficult to clear debts. This is one of the main reasons not to carry a balance.
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Mothers And Sons: Being A Godly Influence
Rhonda Stoppe describes her early motherhood challenges of raising a son, which was intimidating to her. She found help through group of older women mentors. She urges moms to see their role as ministry in shaping sons to be good and godly men. Rhonda outlines several practical suggestions to moms about spiritual training, how to communicate with boys, and supporting the father-son relationship as a wife.
Saving In The Age Of Coronavirus
For those who are fortunate to still have an income and the ability to work from home, this could be a great time to build your savings.
Now that Americans are spending more time at home, they should consider their new patterns. Take a look at cell phone and cable bills and think about whether you need to adjust your plan to avoid overage fees, says Lindsay Sacknoff, head of consumer deposits, products and payments at TD Bank. There may also be bonus services youve previously been paying for that can be reconsidered now that you have more time at home, like a home cleaning service or babysitter. These expenses can now be cut out from your budget so you can save that extra money.
On the other hand, if you are facing a reduced income then you may want to reach out to your lenders and providers to discuss temporary payment relief options.
It can be easy to assume that whatever amount appears on your monthly bill is set in stone, and for some municipal utilities like water and electricity that may be the case, says Tony Wahl, a credit and loan expert at Credit Sesame in Mountain View, California. However, sometimes subscription services like telephone, cable and internet service can be negotiated. This can help prioritize your bills and free up some of your available cash to be added to your savings.
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Pay Off Your Mortgage
With no outstanding credit card balances, you’re free to divert more money to a mortgage payment and to accelerate your timetable for owning a house. If you purchased your home with less than 20% down, you likely have private mortgage insurance . Increasing the amount you pay each month will get you off the hook for PMI and lower your overall monthly mortgage payment.
Make sure you contact your mortgage lender to cancel PMI once you reach 20% equity in your home.
Aside from ditching PMI, paying off your mortgage sooner will save you interest fees, and push you toward full homeownership sooner than if you were making the minimum required mortgage payments. Check your loan paperwork to be sure you wont face any early payment penalties by paying your mortgage sooner than scheduled.
How To Use A Personal Loan To Pay Off Credit Card Debt
If you think getting a personal loan to pay off credit cards is the right move, it helps to have a game plan going in.
- Choose the right loan. The first step in consolidating credit cards with a personal loan is finding the best loan option. Shop around and compare loan fees, interest rates, repayment terms, and qualification requirements from different lenders.
- Use loan funds to pay off debt. It may be tempting to spend that lump sum of cash, but remember your goal: paying off credit card debt. As soon as the loan proceeds clear your bank account, schedule payments to your cards to pay them off.
- Don’t add to your debt. Once your , consider putting them aside somewhere so you’re less likely to use them to make new purchases. If you’ve stored your card details online at your favorite stores or a mobile wallet app, you may want to delete that information. This way, you can stick to paying cash for purchases instead of credit.
- Pay off your loan early, if possible. Paying off a personal loan early can save money on interest and get you out of debt faster. Switching to biweekly payments, for example, could knock a few payments off the loan term.
If you want to pay off your loan early, be sure to check first to see if you’ll be charged a prepayment penalty.
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