Pay off debt vs. savings

**changed4life** · 08-20-2008, 07:18 PM

I don't follow D. Ramsey strictly because certain other things make more sense to me. For instance: I plan to beef up my EF before paying off bills which are Raymour and Flannigan and Best Buy at 0% interest. Total amount $5,000. I'd rather pay the minimums for a year and have 15,000 in the bank by then.

It makes more sense to me to have a beefy EF because of Murphy rather than pay higher amounts on a 0% bill. I know Dave advocates paying off debt first, but honestly $1,000 in an EF doesn't make me secure.

If my debt had high interest rates I see his point, but with 0% it doesn't make sense to me to forego the savings at first. Any thoughts?

**missmanny** · 08-20-2008, 07:32 PM

I think that you have to do what feel right for you - every one here has their own priorities and if yours is to have a really beefy EF then so be it.

No one here walks in your shoes and no one can tell you what is right for you.

For me personally it was important to get rid of my debt first. I just know that with that out the way it will be easier for me to really save money without all of the payments to make as well.

Also It made me sqeamish to be so beholden to companies that don't care at all about me.

That worked for me - but it doesn't work for everyone.

**McD** · 08-20-2008, 07:32 PM

When does the 0% expire?? Is that the rate for the life of the loan? If not, what happens if 0% expires and you don't have hte balances paid off, do they hit you with all that accrued interest? I'd be figuring out all of those things first.

(BTW, I agree with you on not feeling secure with just 1K in savings).

**elphie** · 08-20-2008, 07:34 PM

I agree for a couple of reasons.

1) We have a 0% loan for the life of our car and our EF draws 2.25% in an MMDA account. If we dropped below $10,000 we could only get .75% on the same account. We would be losing money if we followed DR to the letter.

2) My dh works construction which can be iffy work. He has never been laid off for a long period of time but if the economy continues in its current state it could happen. He could also get hurt and be unable to work. Having no debt will not pay our bills while I look for a job if either of these things happen but a strong EF will.

I understand that since our debt is low this makes more sense for us. People who are about to go under as a result of debt will have different priorities than mine. Single people, people who are married without kids, and dual income families will also have different priorities than myself. I believe people need to educate themselves and be able to figure out what is best for their life.

I like DR, I also like Susy Orman and Jean Chatsky (sp?)... but none of them live my life and I trust myself enough to know what is best for our situation.

**Greebo** · 08-20-2008, 09:17 PM

Most important - be on the same page with your SO and have a plan.

We decided to grow our EF slowly while reducing debt. My income is relatively secure, so we could get buy w/o doing that, but we like putting that extra bit away.

The idea of the small BEF and radical debt reduction is just that - to keep you afraid a little, and thus motivated to get rid of the debt. Why? DR hates risk, and debt carries more risk than no debt. Debt + EF = more risk than Debt + No EF or No Debt + No EF in his mind. I tend to agree. You don't. It's a personal formula in the end.

**changed4life** · 08-20-2008, 10:43 PM

[QUOTE=MrsMcDowell;985022]When does the 0% expire?? Is that the rate for the life of the loan? If not, what happens if 0% expires and you don't have hte balances paid off, do they hit you with all that accrued interest? I'd be figuring out all of those things first.

The loans are for 5 years and 3 years, respectively. However, after the emergency fund is fully funded, they will be paid off in approximately 1 year. So, 1 year to save the EF, 1 year to pay them off.

Thanks for all the feedback so far.

**cheappearls** · 08-20-2008, 11:10 PM

[QUOTE=changed4life;985145]

Originally Posted by MrsMcDowell

When does the 0% expire?? Is that the rate for the life of the loan? If not, what happens if 0% expires and you don't have hte balances paid off, do they hit you with all that accrued interest? I'd be figuring out all of those things first.

The loans are for 5 years and 3 years, respectively. However, after the emergency fund is fully funded, they will be paid off in approximately 1 year. So, 1 year to save the EF, 1 year to pay them off.

Thanks for all the feedback so far.

Sounds like a good plan to me.

**Cricketlegs** · 08-21-2008, 03:30 PM

In the end it is about you and how you feel comfortable.

Guidelines are really just guidelines.

**janis362529** · 08-21-2008, 05:25 PM

I funded my EF before starting paying off any debts. I knew Murphy all to well. By having 1500 aside I could slowly work at working a budget and paying things off. With in days my I crashed my car and needed new tires and an emergency tow. Slowly we juggled finances and rebuilt our EF, now with a better budget plan and started paying things off. Then when Ray's checks stopped arriveing we had a little oh no money we were able to use to keep utilites on.

Now its empty but as soon as Ray gets back to work $50 a wk is going into our EF.