It’s never an easy task to stretch limited financial resources to cover multiple financial goals, especially in a tough economy. Developing strategies to save money doesn't have to be difficult. Once you've put enough money aside, temporarily using funds from emergency savings to pay off credit card debt can save you money on the interest and improve your credit score. You always can rebuild emergency savings after you get your debt under control.
Eliminating credit card debt can save you money that you pay out in interest. If you already have some money saved, it might be to your benefit to make paying down debt a priority for a while. Jeremy Vohwinkle, a retirement planning specialist writing for Generation X Finance, points out that it is possible to divide up your money to achieve different financial goals and still give one goal higher priority than another. Everyone's personal financial situation differs, so you have to consider the best strategy for you. Because you can adjust your financial priorities as your circumstances change, it might make sense to use some of the money you've saved to pay off a debt that you want to get rid of. However, in order to save, you may have to live a more modest lifestyle.
Personal finance columnist Liz Weston says that paying down credit card debt saves mounting interest charges, especially when you can pay it off early. What's more, paying debt down more quickly allows you to work on building up that emergency fund again. One way you can save extra money is by doing away with expenses you don't really need. Put the money you save into an emergency fund. Instead of spending your tax refund when you get it, put that in your emergency fund, too. You also can adjust your tax withholding to give yourself more money in your paycheck. This gives you more money to save so you can pay off the credit card debts that haunt you.
Saving Half/Paying Half
In some cases, you may find yourself not knowing what to do, especially if you have outstanding credit card debts hanging over your head. If you don't want to put a big dent in the emergency fund you've worked so hard to build, another option is to equally divide any extra cash you have each month. Put some in savings and apply some toward paying off credit card debt. While it may take you longer to pay down the debt, you are making regular contributions to two worthwhile financial goals; the more savings you accumulate, the more money you have to pay off debt. As your savings grow, you can take a portion to pay off your credit cards. Afterward, increase your savings by continuing to put the monthly payments you used to pay off credit cards back into your emergency fund.
Tapping Other Resources
Making just the regular monthly payments rather than paying extra on the principal of your mortgage or other low-interest loans can give you more money to put toward an emergency fund. Because this is a temporary approach, you can resume making extra payments after you pay off your credit card debt. Another option is to budget an amount for emergency savings each month. Determine how much you can comfortably put aside out of each paycheck, and then treat it like it's just another bill. Personal finance expert Suze Orman suggests having money automatically transferred each month from your checking to your savings account. This may leave you no choice but to cut back on spending. Once you have enough money in your emergency fund to pay off high interest credit card debt, you will have more income available to rebuild your emergency savings.
- Generation X Finance: Build an Emergency Fund, Pay Off Debt or Save for Retirement – Three Competing Goals That All Need Your Attention Today
- O, The Oprah Magazine: How to Build an Emergency Fund
- Get Rich Slowly: Emergency Fund vs. Debt Snowball – What’s the Top Priority
- Ask Liz Weston: Q&A – Saving Money
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