Comments on: Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman

By: DH

DH — Sun, 25 Dec 2011 14:05:29 +0000

Personal circumstances must be considered. I am a single parent and need to be sure my son and I are protected in the event of a job loss. That means having a fully funded EF of 6-12 months of expenses would give me peace of mind over the credit card debt I current have but am not paying off as quickly while I am funding the EF.

By: Angelique

Angelique — Mon, 31 Oct 2011 21:43:42 +0000

The Army has given us the opportunity to pay off one car and purchase a home. though we had orders to stay here for another 3 years while I finish college (no loans…using financial aide & hubby’s GI Bill), they are moving us 3 years early. The 1000 we had in the ER fund has been used on…emergencies…bam one right after the other! and now we MUST fully fund the ER accoount before moving and renting out our home. For us that means paying minimum on all other debt. we refinanced the car at a lower rate and MUCH lower payment (we had 5K equity in it so now we pay 225 less). We must have 6 house payments in the bank just in case renters don’t pay or the house is empty for a month.

I think that the ER fund versus debt issue is one that solely depends on a person’s situation. If we were merely renters or living in base housing, 1000 would be sufficient while paying off all debt. But we cant sell the house, and it’s where we want to retire in 9 years.

By: Matt Jabs

Matt Jabs — Fri, 02 Sep 2011 03:29:28 +0000

Yeah, Suze was lucky that day.

Most people in hardship never consider getting rid of possessions as a way to trim/save… it needs to be put on the table right away. “You get what you pay for” takes on a whole new meaning when you get more than you can afford!

By: Damon Day

Damon Day — Wed, 31 Aug 2011 07:17:15 +0000

Hey Matt,
That is way cool that you were able to converse with Suze via twitter. The amazing part is that you resolved your differences using only 140 characters. Ha ha.

While I do agree for the most part with Suze, as you state, every situation is different. For many, waiting to build up an 8 month emergency fund before paying off credit cards will be a monumental task. For instance if you need 5000 per month to live on, and you can only devote 500 a month to an emergency fund then it will take you 80 months to build an 8 month emergency fund.

So one must take many factors into account to decide what is an appropriate level for their EF and when they should start attacking their CC debt. For most people, paying the minimum payments for 80 months is not going to be a very good strategy.

By: Monthly Debt Reduction & Savings Statement – December 2009

Monthly Debt Reduction & Savings Statement – December 2009 — Wed, 11 May 2011 04:42:09 +0000

[...] our credit card and auto loan debt – started as $11,080 in August, 2009.)Save $6,000 toward an Emergency Fund by the end of 2009.All other goals have already been met, or at least consolidated into the LC [...]

By: » Carnival Of Money Stories #11 – Money Quotes Edition

» Carnival Of Money Stories #11 – Money Quotes Edition — Sat, 26 Feb 2011 15:27:54 +0000

[...] Jabs presents Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman posted at Debt Free [...]

By: Inge

Inge — Tue, 13 Jul 2010 16:29:35 +0000

My husband and I have been working a modified version of the Dave Ramsey Plan. We built our $1,000 emergency fund, will have paid off the Credit Cards on Friday (7/16/10) (while continuing to invest in 401k and Roth – we are not getting any younger) and are now faced with what to do on our remaining debt (car, 2nd mortgage).
The 2nd mortgage is by far the largest balance and highest interest rate. Our first approach was pay 55% or ~$600 of the snowball previously paid to credit cards towards the 2nd mortgage and pay 45% or $500 towards the EF. We just changed our minds and here is how. We decided that we are going to put all money towards the EF BUT will account for the $600 payments in a separate ledger (Read a spreadsheet so I don’t forget how much I saved). When we have enough money in the ledger to pay the 2nd mortgage in full (April 2013) (or refy both 2nd and 1st at a lower rate – we currently don’t have enough equity due to the market) we will pay the 2nd mortgage off. We know that this will delay our loan payoff by about 2 months. However, we also know that having this money in the bank will allow us to pay all our debt in case of an emergency (e.g. one of us looses their job) whereas if we cannot pay the 2nd mortgage for a month or two because of dire circumstances we might loose our house. (once the 2nd mortgage is gone we can afford the remainder on just one income). We consider the interest loss here an insurance payment we make (about $50 / mth per my calculations). Anyway, what do you think?

By: Personal Finance Armor

Personal Finance Armor — Thu, 18 Feb 2010 18:08:33 +0000

[...] fund and other high interest savings accounts by using the percentage approach. I currently designate 25% of my available funds to my savings even though I am still in debt reduction mode.Debt reduction – this is where I am current [...]

By: Walter Updegrave, Suze Orman, Financial Planners, Minimum Payments, Bad Ideas, Shortcuts, Credit Card Balances, Emergency Fund

Thu, 04 Feb 2010 16:20:01 +0000

[...] one when you already have a good deal of credit card debt (for example, here’s Suze Orman tweeting with fellow blogger Matt Jabs), there should be near complete unanimity that if you are current on your credit card balances [...]

By: Jeff

Jeff — Thu, 19 Nov 2009 21:31:59 +0000

Deciding to payoff or pay high interest is a double edged sword. For people with interest rates in the single digits and low teens, building up a reserve is a good idea. But anyone who has a 20% plus interest rate is wasting $200 a year on every thousand dollars of debt they carry. That’s a grand for someone with 10k.

Basically, you might get hurt by a credit limit cut if you pay your card down, but you’ll end up with a lot less in the bank if you continue to pay absurd interest rates on your credit card debt.

By: Gazelle Intensity in Debt Repayment | Debt Free Adventure!

Gazelle Intensity in Debt Repayment | Debt Free Adventure! — Fri, 30 Oct 2009 07:04:54 +0000

[...] Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman [...]

By: Steve in W MA

Steve in W MA — Sat, 26 Sep 2009 16:56:17 +0000

@ Dana:

Wow, you’ve been through the wringer!

I’m glad you had that little extra money put aside and it was able to help you.

And I’m glad you’re OK!

By: Torrey

Torrey — Fri, 11 Sep 2009 20:29:33 +0000

Following the Dave Ramsey plan would have screwed me a couple of weeks ago. I had an emergency over $2500. That’s why I feel better having more than $1000 in my EF and lean more with Suze’s advice.

By: Matt Jabs

Matt Jabs — Fri, 11 Sep 2009 01:51:46 +0000

Thanks Leah… great info!

Yeah, we are familiar w/Dave’s awesome teaching points. He truly is an inspiration, and I thank God for him. Like Dave says, “personal finance is personal and you can’t go wrong getting out of debt”! We employ (and invented ) this 75/25 approach because of several successive instances that drained our puny $1,000 EF and left us using a credit card again. You can go through the archives of my Monthly Debt Reduction and Savings Statements or my detailed post on our Balanced 75/25 Method for details – but suffice to say… we found we felt much more comfortable with more than $1,000… so we just continually save 25% of it.

By: Leah

Leah — Thu, 10 Sep 2009 16:19:33 +0000

Matt,
Goodness, what a concept. We follow the Dave Ramsey protocol on EF building. Which is first and foremost saving up $1000 before devoting extra money to debt.
We paid off our CC’s at the beginning of this year with Income Tax Return, so all we have now is Car Loan, Mortgage and those dreaded student loans.
Anyway, Dave says to save up this $1000, because most emergencies cost you less that that and it is easily built up again should you need it for a true emergency (ie: new refrigerator, car repair, etc.)
So, the goal is to get to only having a mortgage to pay off. When you only have the mortgage left, then build up the EF to a 3 to 6 month savings. Once you have that EF built up, attack the mortgage with “Gazelle Intensity” as Dave is so fond of saying.

I’m sure you know all this, Matt. For the good of the readers.

By: Dana

Dana — Sun, 30 Aug 2009 03:32:30 +0000

When I was married I amassed some credit card debt but was socking money away into a savings account in case we might need it later. When my husband found out, he was *livid.* He said it made no sense to save any money when we had a credit card to pay off. (Never mind he was adding to the balance with various stupid purchases.) He insisted that I withdraw it to go toward bills.

My stepmom, who had her name on the account (it had been mine since high school and I was funding it from my own paychecks, even), wisely did not let me have the full balance. Because not even a year later my husband got into serious legal trouble that involved me having to leave him because I was the one who turned him in. Had I never said anything to him about the account, I would have been in a lot better position to deal with the situation. And even if the marriage itself had never run into problems, let’s say his grandmother or mom died and we had to go to a funeral suddenly–we’d have had the money to go, and wouldn’t have had to pay interest on it.

You never think it will happen to you. But life doesn’t work that way.

By: New Rules for the Credit Card Act

New Rules for the Credit Card Act — Thu, 27 Aug 2009 04:21:56 +0000

[...] current market conditions, paying off credit cards before investing is a sound financial decision. Even if the market were performing in an [...]

By: Another good week of PF blog reading » JoeTaxpayer

Another good week of PF blog reading » JoeTaxpayer — Sun, 09 Aug 2009 12:04:33 +0000

[...] last month but I just discovered – Pay off Credit Cards VS Build Emergency Fund Savings – Me VS Suze Orman by Matt Jabs. It’s great to see that Suze took enough interst to reply to Matt and clarify [...]

By: JoeTaxpayer

JoeTaxpayer — Sat, 08 Aug 2009 12:52:23 +0000

I suppose, like anything, it depends.
If you have many cards, and owe so much that building that emergency fund will take a long time, the EF may be costing you 24%+ and you may never catch up.
I had a cash EF that was a good 9mo of expenses and decided to throw nearly all of it. That let me pay the mortgage down enough that combined with the lower rate, moved us from the 27yrs left on a 30 yr mort, to a new 20yr, at a lower payment.
Not for everyone, I know. Each person needs to lay out all their details and decide what’s right for them. Suze is trying to hit her audience, and I suspect her advice does just that.

By: Personal Finance Armor | Debt Free Adventure!

Personal Finance Armor | Debt Free Adventure! — Wed, 29 Jul 2009 09:06:49 +0000

[...] fund and other high interest savings accounts by using the percentage approach. I currently designate 25% of my available funds to my savings even though I am still in debt reduction [...]