Your Questions About Pay Off Credit Card Debt Or Save

John asks…

Pay off Credit Card debt or save for Down Payment?

My wife and I have a combined income of about 170k per year. We have not bought a house yet. We have about 20k in credit card debt currently.Oir debt ratio is about 30% of our available credit. The last time we ran our credit our scores were in the 720 range.With all the benefits of first time buyers now. Should we pay off the CC’s or focus on saving for a down? How much cash will I need 3% or more? We do have about 50k in our 401k’s. Should this be used for a down?

richmama answers:

No, don’t touch you 401ks. Let’s get honest here, if you’re making 170K a year you don’t need to ask this question. After taxes you’re making upwards of 9K/month. Pay your bills off and then start savings for a down payment. Again, DO NOT touch your 401k. It will only take a few months of being stingy and you’ll have your bills paid off. Also, look for more like 20% down.

Linda asks…

Pay off Credit Card Debt or Save for Downpayment on Home?


I am a young adult, 3 years out of college and make about $70k. My credit card debt right now is about $4k. I have a carpayment each month of about $500, but dont have any other major expenses (no student loans, etc). With all the opportunities available to buy a house – FHA loans, $8k stimulus, etc …

Should I be saving $$ for a downpayment on a home, or paying off the rest of my credit card debt??

I also worry that a home is only the first step, and buying furniture etc will only increase my credit card debt! I am comfortable renting and slowly paying off my CC debt, but realize this may not be the best decision in this market…

Any advice?
Sorry – does this change things – my APR is 3% on my credit card … so very low!

? thanks again!

richmama answers:

Kudos for at least thinking about the fact that buying a home is barely scraping surface of what you’ll need to pour into it. Pay off your credit card debt since it’s so low. Deal with getting a home when you have $20,000 burning a hole in your pocket that you really want to spend on rugs and furniture and repairs and property taxes or condo fees.

Go with your gut and pay off that small bill. You just need to focus on saving up for a few more years. When you can easily afford to put down 10-15% for a house, then you’re ready for the rest of the expenses. Until then, don’t bog yourself down with that huge commitment.

Thomas asks…

Should I pay off credit card debt first, save for a car, or do both simultaneously?

I am currently finishing up my Bachelor’s degree in English this summer and I’m almost 23 Three weeks ago I got a summer job after being unemployed for almost a year while at school. The job pays fairly well for a summer job ($12/hr) as a cook and now that I finally have a bit of income I am wondering how I should manage it.

I currently do not have a car and live with my mom who also doesn’t have a car. I live within biking distance of my job, but I simply don’t want to walk or rise my bike come winter time. I am looking to spend at least $3000-$5000 on this car as I have spent less than $2000 on my previous three cars and they have all been unsurprisingly terrible and I had to junk my last one recently for like $100.

By June, I will have about $2300 in credit card debt at 10.24% interest, half of which is paying for my summer classes at the community college (I know its best to get an alternative loan but I simply didn’t meet the enrollment in time as I was far away from the school at the time and busy finishing up my senior project).

Right now, I am thinking that if I spent one of four paychecks a month (about $300) on paying down my credit card and the rest on saving vigorously for my car, then I could be creditcard debt free and have about $4000 to spend on a car in about 5 months (in a perfect world). My question is: Based on the above, what do you think is the best approach?
credit card debt free in more like 9 months and save for a car in 5 months*
Well, I’m trying to be optimistic, and without a car it’s near impossible to find a good internship or job interview or at the least decreases my chances and makes it considerably more difficult–especially in a small city.
Sure it can be done, but most, if not all writing/editing jobs in New England are in Massachusetts, about 3 hours south of my location.

richmama answers:

Do you have other options for transportation, like city bus, subway, tram, rail? They may not be the most comfortable option, but they’ll save you money in the long run. Also see if you can make friends with someone at work who lives in your area, so you can get a ride when the weather is bad. Basically what I’m saying is, delay buying a car as long as possible because: it is better to be debt free than pay interest each month and even a $4,000 car is going to require repairs and the regular costs of gasoline, insurance, oil changes, tires, etc.

The previous post was harsh, but it can be difficult to find a good paying job with an English degree. If you absolutely *need* a car to get an internship which will help you gain experience and find a much better paying job, I think you’ve got the right idea by doing both simultaneously. Pick up any extra hours you possibly can so you can earn a little bit more. You can always adjust your plan in a month or two, depending on how you’re tracking to your goals.

Sandra asks…

I’m 26 and am debating whether to pay off credit card debt or save in my roth ira.?

I have $5400 in credit card debt at 3% which is a teaser rate till Jan 09. I make payments on the card of about $130 a month. I also contribute $209 a month to my roth ira. (I have a 401k to get the match and small position in a taxable account, not part of the question but gives more insight.)
Should I take that $209 a month going to the ira and pay off the credit card debt sooner? (One reason I am a little hesitant is the market sucks and I could potentially be buying up cheap shares that I don’t want to miss out on, but I really want to move towards being debt free.)
OR Should I keep paying $130 on the card a month and look for another low balance transfer in Jan and continue to fund my ira?

richmama answers:

Pay off your debt first. Always be debt free if possible

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