FINANCIAL ADVICE NEEDED

[neadods]

I have just successfully applied for a furlough relief loan, which my bank was giving under excellent terms. I meant it to be a debt downpayment.

BUT, I realized that at this point, with the bonus and my savings, I can take one of two paths:

1) Downpay highest card debt, have 3 months survival $
2) Pay *off* highest debt, have little over a month's survival $

Which way to go, with my co workers being let go, a short paycheck coming, and a potential new furlough?

Comments

[tiggerallyn.livejournal.com]

I'm actually thinking number 2. Then, instead of writing out the credit card/loan payment check, deposit that amount into your savings.

[neadods.livejournal.com]

Wait, what? If I spend it on paying off the card, there *is no* "that amount" to put into savings until after February. There aren't that many paychecks between now and January, and some of them are going to be short, one by almost half.

[tiggerallyn.livejournal.com]

Gotcha. I didn't realize you were playing with smaller paychecks as well. Number 1, then. Though the number 3 option below is also good.

[taffimai.livejournal.com]

I've always been told to have a six month emergency fund if at all possible, so I would go with the three month option.

[lagilman]

One. Yeah, normally I'd tell you to pay off all one card, but right now you need to keep the longer short-term in mind, and having available cash will let you sleep a little better at night.

[neadods.livejournal.com]

On the other hand, the more it's paid down, the less I need for survival $. That's what I'm wrestling with.

[lagilman]

yeah well, we can only advise off the scenarios as given....

[neadods.livejournal.com]

I would give a lot for a functioning crystal ball right now myself.

[redpanda13.livejournal.com]

If you can trust any of these buggers, the GOP honchos sound like they're not going to shut down the government again any time soon. They've been kicked around the block by about 75% of the public, including over half of their own voters. And if they did it again in January, it would be even closer to the next election.

[neadods.livejournal.com]

That was the thinking behind such a short continuing resolution. But with the tea party narrative being that it was a "winnable fight" and threatening primary battles, I'm pretty sure the inmates are still running the asylum.

[nonelvis]

#1. Things are too unstable now (and Congress too idiotic) to assume you'll continue to get a full paycheck for the foreseeable future.

[neadods.livejournal.com]

I know I'm not getting a full paycheck as early as next week! So yeah.

Thing is... the more I pay down, the less I need for survival $.

[nonelvis]

the more I pay down, the less I need for survival $

True -- but the more screwed you'll be if shit happens. This is one area where I think it's worth playing it safe.

[lagilman]

Yeah, that was my point. Cash on-hand means less reliance on credit if you need it, and less pile-on interest.

[neadods.livejournal.com]

badgermirlacca has a third route - hoard it all and pay only minimums for the next three months, then drop the load on the high debt.

Of course, if I live on it that would mean high debt and no more liquidity...

[badgermirlacca.livejournal.com]

I'm inclined to #2 IF you destroy the card.

Or, a third alternative: stick the loan into a savings account, and see what happens in February. If it's another furlough, you'll have the money. If it's NOT, then take the money out of savings and use to pay off the credit card.

[neadods.livejournal.com]

Not destroying the card. It's AmEx, and I need that 800-lb gorilla on my side. I've needed to sic them on people. I can pay off and disconnect the "sign and travel" feature, though.

I like the third alternative! That's a *very* tempting path. Or I could combine it - pay down part of what I intended now, and pay off the rest later.

[evil_plotbunny]

I like the third alternative too. At this point, I think having money on hand in case the furlough repeats is more important than paying down the debt.

[fyrdrakken]

I agree with this one. Set the money aside so you have it still intact to drop onto the debt if we get through January and February without another shutdown. (Though depending on how much the interest charges are, I wonder if it might save a bit of money to go with #2 and then in an emergency resort to using the paid-off card to get by. And that's gambling that the amount needed to get you through will be less than you spend paying off the card. But then again, if you don't spend less than you have available as cash or credit, you've got a whole new set of problems anyway.)

ETA: And the next comment down beat me to this thought. But, yeah, a few years back I was in the situation of having one credit card payment that was barely within my means, and the vast majority of it was going to just the interest from each month.

[tacnukesoul.livejournal.com]

Find the largest rate debt and pay that off first. Keep a one month unless you have high rate debt - you'll save more drawing down the debt than the interest on savings and you can always put the debt on again. Use what you save on interest at the next highest rate.

[neadods.livejournal.com]

The highest rate debt is also the highest amount debt; what to pay off is clear. How much liquidity I'll need until the political situation settles down is the question. Once I can count on a regular paycheck, the paydown path is clear.

[elasg.livejournal.com]

If you haven't yet used any unemployment, you've got that option too.

I'd be inclined to go with #2 too. Less debt hanging over your head means you will have more options if it turns out you do have to look for another job.

[neadods.livejournal.com]

I was told to file for it, but by the time we'd jumped through the hoops, we reopened.

[elasg.livejournal.com]

Yeah, that is what happened to us too - when our state gov. and his legislature last got into a tango - but it's good to know it's there.

[spiffikins]

I think it really depends on the difference in the rate of interest on the existing debt vs the furlough loan.

I assume you aren't able to borrow enough from the bank to completely pay off the existing card debt? That would be a 1:1 swap to the new lower rate.

It seems that the worst case scenario would be a) borrowing from the bank to pay off some of the credit card, b) using all your savings and bonus to pay off the rest of the credit card, and then ending up having to rack up the credit card again to survive - because you'd still have a chunk of bank loan, AND you'd have more credit card high interest debt.

So the question is - worst case scenario, and you have to use the card to live off - what is the likelihood that you would charge as much or more as what is currently on the card? If under the worst of circumstances, you would not need to charge a bunch on the card - and/or you have an alternative card that would have a lower interest rate - you would still be better off than the existing debt on the card, yes?

However - personally it would come down to "how would I sleep at night if I were in this situation with only a little over a month's survival $" - and I would keep the 3 month cushion honestly.

If you pay down the credit card - what is the interest charge on 3 months of the remaining debt - that's pretty much the long term "cost" of the security of 3 months survival right now.

[neadods.livejournal.com]

assume you aren't able to borrow enough from the bank to completely pay off the existing card debt? That would be a 1:1 swap to the new lower rate.

Alas, no, which gives you some idea of the staggering amount. However, a pay down brings it from staggering to within a few month's payoff... IF I have a full paycheck.

[suze2000.livejournal.com]

I'd pay off the Amex (option 2). Those buggers charge poo-loads for overdue payments. Worst case scenario, you don't get paid properly in Feb, and you use your (newly paid-off) Amex to support yourself for a month. Sure, you'll end up with debt again, but you won't be paying interest and fees for those three months which will help balance the budget while you have less money. If you have to get a new job, you'll be screwed either way IMO, so I am just hoping it doesn't happen that way!

I hate that you have to take out a LOAN because of the GOP though! it burns me!

[neadods.livejournal.com]

The fact that my bank had to come up with such a loan is both appalling and a relief.

[tchwrtr.livejournal.com]

Option 3 below, or if that one does not work, go Option 1. Keep the pad for survival. Avoid even *more* debt if you can.