How Can I Pay Off My Debt and Increase My Savings. – Aimee

“Dear Steve,

I have approximately $8,700.00 in credit card debt, and very little (approximately $300.00) in savings.

I take home just about $1,500.00 per month. My usual monthly bills total about $520.00 per month (I don’t have rent currently.) I budget approximately $400.00 per month for basic variable expenses – like food and gas.

That leaves $580.00 per month to split between credit cards and savings. How much of this should I devote to credit vs. savings? I would like to start saving more, as my goal is to be able to move to another state around August of this year.

How much of my money should I put into savings vs. use to pay off my credit card?

Aimee”

Dear Aimee,

I’d like to see you start to pay only the minimum payments on the credit cards and put all the extra money in savings until your balance gets to be at least $2,000. Without this money in storage and ready to access in case of an emergency, if an unexpected expenses comes up, and they always do, it will just land back on the credit card and erode any debt reduction progress you made. However, if you can pay for the emergency from savings then you can just go back to minimums and build that balance back up to the $2,000 minimum threshold.

Once you hit $2,000 in savings you can then do a split like $406 towards the cards and $174 into savings. This is a 70-30 split.

Depending in the interest rates on the credit card debt you could explore something like LendingClub.com for a unsecured fixed rate debt consolidation, The loan would be for three years and if you used it to pay off the current credit card debt you’d know exactly when you would be out of debt. Visit this link for LendingClub.com and find out how I can be an investor in your loan if you decide to go that route.

Damon Day - Pro Debt Coach

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