I owe $94,023 total. I owe $41,089 on my mortgage, at 6% interest, and $2,754 on my car, at 6% interest. I owe $50,189 on my credit cards and line of credit, at interest rates ranging from 3.99% to 12%. My annual income is $56732. My house payment is $549, my car payment is $353, and my minimum credit card payments for last month were $960. I have $747 in emergency savings.
I try to keep my emergency savings at $1,000 and use any available money to pay down the credit cards, highest interest rate first. Is this the best approach to getting rid of this mess?
I recently wrote “Don’t Pay More Than the Minimums on Your Credit Cards” that I think applies to your situation.
My gut reaction is that $747 or even $1,000 is not of an emergency cushion to protect you. I’d like to see you have several thousand dollars at least in savings.
Once you reach that target then use the debt snowball approach to reduce your debt. It seems to be the most effective in motivating people to slog through the long grind of eliminating debt.