Comments on: Debt Pay Down FIRST

By: Teri B. Clark

Teri B. Clark — Wed, 26 Jul 2006 23:49:50 +0000

Once you have paid down your debt and have an emergency fund, you then need to determine how to build your nest egg. If you want to earn 10 to15% interest in a safe way, then you should look at private mortgage investing. To learn more, go to http://private-mortgage-investing.blogspot.com

By: Lisa

Lisa — Wed, 26 Jul 2006 01:22:32 +0000

I am a huge believer in having the baby emergency fund (about $1000) before paying off debt. If your goal is to honest-to-goodness REALLY get out of debt, then you simply have to stop getting into it. Period. Many emergencies can be solved with a $1000 emergency fund and can easily avoid going deeper into (or back into) debt. Granted, in a true massive emergency, you are going to go after whatever money you have or can get your hands on, but it’s too bad if a blown head gasket requires you to go back into debt. An emergency larger than $1000 should really wait until after you are out of debt.

By: Experienced

Experienced — Tue, 25 Jul 2006 14:09:14 +0000

You still need at least $500-1000 before paying off debt. Even $500 could help keep you over the edge. After all, debt with no savings is what got you into severe debt in the first place. Don’t get me wrong; debt re-payment (as quick as humanely possible to avoid insane finance charges) is important, but it’s also important not to get yourself into any more trouble by not being able to pay the mortgage, car payment, etc.

If you’re at the point where you credit is shot, you have debt, and high pills, save a little something first. If you don’t, you’ll have nowhere to turn when the car blows out, the rent is due, the kid breaks a limb, etc.

By: traineeinvestor

traineeinvestor — Tue, 25 Jul 2006 06:50:45 +0000

I agree. In most circumstances, paying off a liability that costs (say) 7% after tax to service is a much better use of money than building up an emergency fund that earns (say) 5% before tax. For people who cannot keep their hands out of the cookie jar (occasionally guilty), paying down debt reduces the temptation to splurge. There are two circumstances where not paying down debt is the better course of action:

1. if you can get a better return on your investments and can accept the related increase in risk; and

2. if your primary source(s) of income are unstable.

I’ll stay off the subject of “his vices” and “her vices” or my comments will end up being longer than your original post

By: Debt Free

Debt Free — Tue, 25 Jul 2006 06:47:08 +0000

If you do have credit cards with fairly high limits, you can always use those for an emergency fund if necessary. That way, instead of earning a paltry 4% on a savings account to enable you to have some liquidity for emergencies, you can be retiring debt with a 15% interest rate. Seems like a no brainer. If you do have an emergency, you’ll just charge up the cards to take care of it and be no worse off than you were before. No emergency and you’re way ahead.