pay off debt by emptying savings?

iVillage Member
Registered: 07-20-2003
pay off debt by emptying savings?
10
Sat, 02-19-2005 - 5:09pm
We have finally been able to put money into a savings account and maintain it. However, I do owe about $15,000 in debt. My dilemma is, should I empty my savings ( a modest $4,000) to pay off my car immediately or just keep making my payment? I do pay about $150 more than the required payment each month. Or is it a bad idea to practically empty savings to pay off debt? Please help!
iVillage Member
Registered: 10-14-2003
Sat, 02-19-2005 - 5:12pm

I wouldn't empty all of it. I try to keep $1000 in savings. However, I know that my savings account gets less interest than the debt is charging me. So to me, it makes more since to pay of a debt at 12% or whatever than to earn .5% or whatever it will earn in savings.

Hope to help!

Stephanie

Avatar for travinski
iVillage Member
Registered: 05-21-2004
Sat, 02-19-2005 - 5:41pm
Personally, I think you should pay some off your debt but keep a healthy balance in your account - for dignity sake alone!

Travi

 

iVillage Member
Registered: 11-13-2004
Sat, 02-19-2005 - 5:50pm
Personally, I would keep the money in savings so that when you have an emergency, you will not have to go further into debt to fund it. Since you are paying more than the required on your car loan anyway, you will have it payed off sooner. However, if you have credit card debt, I would take the extra money that you are sending for your car loan and send it to your credit cards to get them paid off faster. If you don't, once the car is paid off you can take that money and it put it in savings. Just my two cents. I think you are doing great and I wouldn't risk your savings in case you need it for something in the future! Take care!
iVillage Member
Registered: 02-06-2005
Sat, 02-19-2005 - 6:39pm

We decided to follow the Dave Ramsey Total Money Makeover Plan to get out of debt.

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iVillage Member
Registered: 12-07-2003
Sat, 02-19-2005 - 7:43pm

I wouldn't

iVillage Member
Registered: 07-20-2003
Sat, 02-19-2005 - 7:52pm
Thank you all for your help!! We have $3000 left on the car to pay off. The other debt is a personal loan with $ 12,000 left on it. When that is all paid off, the only thing left is the mortgage. That step plan sounded like it would work out real well for us, it made sense. Any other suggestions would be appreciated.
iVillage Member
Registered: 11-13-2004
Sat, 02-19-2005 - 8:48pm
In that case, I have to adjust what I said before. If you use Dave Ramsey's plan (and I don't even know who he is, I like Suze Orman, anyway..) this would work in your case, because if you pay off your car, you would still have $1000 left in savings, which would be your starter emergency fund and you would have one less payment per month and you could take that extra money and put it to your $12000 debt. That is definately what I would do. And if you can put extra in savings too at the same time, then GREAT! But here's the catch! It will only work if you don't accumulate more debt, like say, trading in your car for a newer car and having another payment! Good luck!
iVillage Member
Registered: 02-06-2005
Sat, 02-19-2005 - 10:09pm

Going to agree with that!

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iVillage Member
Registered: 05-23-2004
Mon, 02-21-2005 - 12:48pm

My personal take is keep $1,000 in savings as your emergency fund.

Take the rest of what's there and apply it first to the smallest debt.

Start the snowball!

:)

Avatar for cherfer
iVillage Member
Registered: 11-11-2003
Mon, 02-28-2005 - 9:43pm
According to books I've read, the rule of thumb is, how much is the interest rate on your car loan and how much is the interest rate on your savings account? Let's say the interest rate on your car is 10% you earn 2% interest on your savings account. It makes more sense to pay off the car loan because you will be "earning" 10% interest by paying it off. Even so, you have to make the choice based on your personal finances and make sure you will be ok if you have an emergency.