David Lerner Associates: Saving or Paying Off Credit Card Debt
At this time of year, you will see many experts offering advice on how to set goals for 2016. Most of them lay out a plan to tackle all the aspects of your financial well-being. In the best of all possible worlds, this would be ideal. However, for many Americans it’s more realistic to take on one goal at a time.
Money worries are the number one cause of stress in America today. Two of the most pressing financial issues causing stress are a lack of an emergency fund and credit card debt. So, which one should you deal with first? Both are vital to your financial well-being.
Emergency Fund
Approximately 62% of Americans have no emergency savings. If they have a sudden, unexpected illness or large repair bill, they won’t be able to pay for it. So, having an emergency fund is an important part of feeling secure and lessening your stress levels.
Money sitting in the bank is probably only earning you one percent interest, but bear in mind that this is not an investment. That fund is there as a safety measure, should you need it. The main lesson the Great Recession taught us is that things can change fast, and no one is immune to the vagaries of the market.
Take a look at your situation – if you are one of the 62% with no emergency fund, start one right away. If you already have some emergency money tucked away, don’t dip into it. Add to it on a regular basis. Having six months of living expenses available gives you a very secure feeling. No matter what happens, you would be able to survive and start again.
Credit Card Debt
The average American household has around $15,000 in credit card debt. The average interest rate on credit card is 15 percent. If you pay only the minimum amount each month it will take you about 8 years to pay it off and cost you more than $6000 in interest.
So, it makes sense to pay off your credit card debt as soon as you possible can. Find a card that offers to transfer your balances to a zero percent interest card for as long a period as possible. Then pay as much as you can on that card, and get that balance right down.
Making is Possible
If you feel that there just no leeway in your budget for saving or paying off cards, it’s time to take a long, hard look at your spending habits. Rather than look for one big item to cut out, see if there are small ways to cut down.
Maybe you don’t need a $4 coffee every day. Perhaps you could take your own lunch to work each day. Cutting out that coffee each day would net you $1000 in a year. Not buying lunch every day would give you $2640 to put in to your emergency fund or pay off your cards.
Look for a better deal on your cell phone plan and your internet/cable service. There are probably many other small changes you could make that would quickly add up to a significant amount.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
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