payoff CC or keep EF?

**Suzy** · 06-12-2008, 09:26 AM

I have $600.00 in my emergency fund. I have 3 credit cards. 2 for a small amount and 1 large. I can payoff the 2 small cards with the money in the emergency fund. Interest on all 3 is pretty high. I have been paying more than the min payment required. If I don't pay them off now I can in a few more months with my regular payments. I was always told not to pay off anything early because regular monthly payments is what builds up your credit. I just want to get out of debt. Any advice?

**ladykemma2** · 06-12-2008, 09:30 AM

build EF to 1000, then begin paying off debts. you might need new brakes or a wisdom tooth pulled by 3 this afternoon.

**Greebo** · 06-12-2008, 09:37 AM

What ladykemma2 said.

I don't agree with DR on one thing - the baby emergency fund should, IMO, match 1 months expenses or $1,000, which ever is greater. $1,000 just ain't enough if your house payment alone is $1,000+

**Russ** · 06-12-2008, 09:40 AM

Originally Posted by Suzy

. I was always told not to pay off anything early because regular monthly payments is what builds up your credit.

I think the CC companies or the Automakers made this up.

**dancar3** · 06-12-2008, 09:40 AM

Have you been reading The Total Money Makeover by Dave Ramsey? It's an excellent book and he says to do the "baby steps" to get out of debt. You would want to have a $1000 emergency fund (baby step 1) and then can start piling money into a debt snowball to tackle the smallest debts first (baby step 2) and then the bigger ones. The reason why you don't want to stop w/ $600 in your EF is because if there's some sort of emergency that comes up and is over that amount, you might be really tempted (or might be necessary) to pull out that CC........something you don't want to do anymore. Believe me, I can understand you wanting to get out of debt, I can't wait myself, but if you do the baby steps, you'll be out in no time at all, good luck!!

**Greebo** · 06-12-2008, 09:44 AM

Originally Posted by Suzy

I was always told not to pay off anything early because regular monthly payments is what builds up your credit. I just want to get out of debt. Any advice?

Please note: What follows is a reflection of my attitude towards debt these days, not you.

Yes, regular monthly payments helps your credit score.
So does having a lot of available credit.
So does having low balances (low utilization).
So does paying your bills on time.

But so what?

If you want to get out of debt, then take a lesson from Dave Ramsey: DO NOT WORSHIP AT THE ALTAR OF FICO.

Having a high "I LOVE DEBT" score isn't a step on the road to financial success, its a step on the road to paying lots of interest for the rest. of. your. life.

Good luck!

**MirandaK** · 06-12-2008, 09:45 AM

Yeah, I'm with them! Keep the emergency fund...never know when an emergency is gonna pop up!!

**The Muse** · 06-12-2008, 09:54 AM

How much are you paying in interest per month?

**staciah** · 06-12-2008, 10:08 AM

Are you going to pay just the minimum payments on your cards? If so, figure out what it will cost you to carry those debits for the length of time that you think you will have them.

Example: $200 in 20% interest paying minimum payment $10per month for 20 months. Thats alot of interest to pay.

This is what I did and we had about $5000 in medical bills and we paid it off within 2 yrs.

I started with the highest bill paid the most on that one. $100 and the other were paid $50 to $25. Once the bill was paid off I would pay that amont towards the next highest bill and so on.

what I would do is if your not going to pay both bills, I would pay off one. Then that money can go towards another bill or to the EF fund. JMHO

**Mom23boys** · 06-12-2008, 10:20 AM

If you use your emergency fund to pay off these cards and then an emergency comes up, what are you going to use? The credit cards? I would keep the emergency fund in place to avoid using the credit cards just in case an emergency should arise. You said you would have them paid off in a few months with regular payments, so I would stick to that plan and keep the EF. Just my opinion.

**Greebo** · 06-12-2008, 10:30 AM

Additional note - the emergency fund is something that needs to be liquid - easily available - and that means it *will* lose money.

The emergency fund isn't an investment, which is money intended to make you money. The emergency fund is insurance, which is money spent now to save you money later.

This is why I say your EF needs to match your expenses somewhat. A bigger lifestyle needs bigger insurance.

But anything more than 1 month in the baby EF is, IMO, excess insurance.

YMMV, TYVM

**itlw8** · 06-12-2008, 11:07 AM

you have to do what is best for YOU I would say keep the emergency fund but if you have extremely HIGH interest and can pay off one of them that payment could then go into the emergency fund and build it back up it is kind of an emergency when you have really high interest.

I would not empty it

Is there any way you can earn some extra money? a second job for a few months???
one of the best ways I have found to pay down a card or build savings is internet banking.... I do not just make one payment a month but if I have an extra $10 or $100 I stick it on a credit card or into saving before I spend it. It will not count towards next month minimum but it sure pays things off faster.

**Luv2BeFrugal** · 06-13-2008, 11:13 PM

I'd keep the $$ in your EF... Build that up to cover at least 1 month's expenses...then start wiping out those CC's...

**danimarie0820** · 06-14-2008, 09:14 PM

I was faced with this same problem. With my two smaller balance credit cards I paid them off. Then with the money I was saving after that went towards the large card. If you can do that it may be easier. On my large balance card I paid $200 or more a month when I could to get rid of it. If money was tight I'd pay a little over the minimum. Now I have no credit card debt and my EF is large.