What % to save when you're in debt?
I have a $3,500 credit card bill to pay off, a $1,000 medical bill for an MRI, and then I'll be completely debt free. What % of my income that's not going to living expenses should go to paying down the debt, and what % to savings? I feel pressure to pay the debt first, since I have a high APR and in general debt sucks. On the other hand, if I twist an ankle and can't work for a month, I'll be screwed without savings.
Any financial wizards here have advice?
Re: What % to save when you're in debt?
Complicating the matter is that I'll be moving in two months, so I don't know what my earnings potential will be at a future club. Where I work now, I can reasonably pull $700 -- $1000 a week in three to four shifts. I have $0 in savings right now.
Re: What % to save when you're in debt?
classic financial theory says the first 30% of your earnings goes to estimated taxes, the next 30% goes to cost of living expenses, the next 15% goes to savings / investments, and the remaining 25% is negotiable. However, where existing high interest rate debts are concerned, paying them off can be considered to be a smart investment.
Re: What % to save when you're in debt?
Ive saved up $3k and now will take everything extra I make for paying down debt. This way I have a cushion in case something happens and I cannot work but the interest you make on your savings is relatively low - maybe 4% vs what the CC interest rate is - 18%? So its smarter to pay down debt but you dont want to be in a position where youve paid off debt, have no savings and end up back in the hole by charging up the CCs again should something happen.
I dont know how much your living expenses are but if you make $1000 a week and your monthly costs are $2000 you can expect to have $3k in savings and $3k in debt paid off in 2 months if you work hard and stick to your goals!
After thats taken care of - another 2-4 weeks to pay off the remaining debt and medical bill (depending on club income). But at least you still have that $3k in savings as a cushion to cover unexpected expenses. Its always a good idea to have an emergency savings fund.
This is the plan Ive been working on... Its working very well for me. See my ticker?! Thats step 1. Then I have almost $4k in medical debt but since thats on a payment plan 0% interest its last to be paid. Currently Im just paying them $25 a month but once all my CC debt is paid the money Ive been putting towards that will go to med debt and Ill be done in 6 months max.
Re: What % to save when you're in debt?
I've always said that the first 10% of whatever you make goes into savings...then you divide the rest of your money as needed (accounting for taxes on everything, including what you put into savings).
That's just what I do. The first 10% goes to me. ;)
Re: What % to save when you're in debt?
Ez math yr CC APR is higher then the interest you would make in savings so the faster you pay that the more you will have to save.
Yes hold on top what you will need for yr move (figure that out 1st, but leave it for last leaving realistic time for you 2 make it) only so you won't have to borrow it again which would be like paying off APR to add to it if you don't but other then that start yr savings after you paid that off and then only use yr cc for what you spend a month and can afford top pay back.
There is no point of saving at a lower rate then you have debt as it only means in the long run you will have more to pay
Re: What % to save when you're in debt?
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There is no point of saving at a lower rate then you have debt as it only means in the long run you will have more to pay
I would point out that since dancers usually aren't covered by disability insurance, unemployment insurance, medical insurance etc. there IS a case to be made for putting aside some 'emergency fund' money in a savings account rather than using every available dollar to pay down debts ahead of time. If and when something happens that the dancer is unable to work for a month or two, the fact that the dancer had been making huge credit card / car loan payments in past months does not eliminate the need to make another payment the following month !
Re: What % to save when you're in debt?
Mel - I just have to say you've taught me a lot over the years and it's much appreciated.
Re: What % to save when you're in debt?
Quote:
Originally Posted by
VenusGoddess
I've always said that the first 10% of whatever you make goes into savings...then you divide the rest of your money as needed (accounting for taxes on everything, including what you put into savings).
That's just what I do. The first 10% goes to me. ;)
:yes: Definitely put your savings first. The thing about debts and bills is, they'll always be there. If you don't make savings your top priority, it will never happen. There will always be new bills and expenses popping up to pick your pockets, and it's easy to get caught up in "after I pay these debts down I'll start saving..." and then you get more bills and say "ok, after I pay these off I'll start saving..." and it never happens. Set aside your 10% first no matter what.