Should I pay off these pesky credit cards???

[thefed]

This seems elementary, but I'm having trouble doing it.

I have $xx,xxx in cash in a MM fund earning 5.4%...and I like it there for liquidity

I have about 6k in a business checking i need to move. If i put it with xx,xxxx in the MMF, I will have my 'goal' for $$$ in the MMF easily accessible. Everything above and beyond can be invested differently

I also have $6k in cc debt...mainly from business ventures. My effective APR is around 10%.

If I pay off the CC's, I will lower my expenditures by $400/mo in cc payments (min payments ive chosen...not the standard 1 or 2 %)...and roughly $50/mo in interest

But then I wont be at my target $$$ in liquid funds Ive been shooting for over that last year. I try to NEVER tap that MMF $$$...just add to it....but its there if needed.


I dont know what to do. On one hand , I want to hit my arbitrary goal for liquid cash reserves. On the other I want to be smart and save $50/mo in interest and reduce monthly outlays by 400 or so. Why is my mentally stimulating arbitrary goal so much more enticing than SAVING 50 bucks/month?

 

[jazz4cash]

You should pay off the cards, or........if it makes you feel better, split the difference by paying them halfway down and accelerate paying off the balance.

 

[LOL!]

Better go read Why Smart People Make Big Money Mistakes ....

I cannot believe you haven't paid off the cc yet.

 

[Goonie]

I was at the same quandry a couple years ago. I decided that since my $$ was earning considerably LESS interest than my CC was charging me, it was wise to pay down the CC's...then bank the $$.

In doing so, I paid off a very large amount of really stupid CC debt, and went back to "banking" the cash again. The amount of money that I saved in interest payments was HUGE!!! I scrimped and scrounged, and live VERY frugally for some time, but the satisfaction of not being owned by any CC companies was very refreshing.....and a REAL boost to the ego!!!

 

[Texas Proud]

Not that you are like this... but it read this way....

Someone I know always talks about how much they have... "I got X thousands of dollars invested".. etc. etc..... but his house has been cashed out with a big mortgage... he has CC debt, (but, is at very low rate)... he would talk about his car monthly payment instead of how much it cost...

I said you don't have that money if you owe it to someone else... As long as you have a good job and are making money then pay off the CC debt... if you need the money for your 'reserve', then fine, pay them off slower, but pay them off before you invest (with the exception of getting 401(k) match....)..

See, it is hard to just say do this or do that... it matters on ALL your other options and your outlook...

 

[2B]

You'll probably not find anyone of this forum that would suggest carrying credit card debt if there is money to pay it off and still have a very modest emergency fund. Carrying 10% debt to maintain a high level of liquidity or to maintain investment funds is hard to justify.

I carry a 6 1/4% mortgage that I could pay off but I don't because it would seriously deplete my "free" cash -- a liquidity issue. I also plan to downsize within the next 2 years and plan to pay cash for the new place. My carrying cost for the loan is about 1% over my "safe" money.

 

[dex]

I think you need to rewrite you personal mission statement. It should not read to have a certain amount of money by various dates. It should describe a way of living. If you write it correctly it will answer your question.

 

[thefed]

i guess i should've re-worded this thread to say "WHY DONT I WANNA pay off these pesky credit cards..."

I know i have to, and will, (going to the bank now to transfer some funds), but it's wierd that having xxxxx in the bank is so huge to me that i'd consider continuing to pay 50/month just for the privilege!

 

[Outtahere]

Fed my dh was the same way when I paid off our credit cards and then paid off the mortgage. He hated that the bank account was going to go down but when I showed him how much we were saving in cc interest and mortgage interest it changed his mind.

 

[GLM]

i guess i should've re-worded this thread to say "WHY DONT I WANNA pay off these pesky credit cards..."


Perhaps the answer to that question is that your focus is too narrow. Instead of focusing on the balance of a single account you need to look at the big picture. Learn to see the account as part of the whole - that is your net worth statement. By paying off the credit card debt your net worth will not be negativly impacted short term and will fare better long term .

 

[jazz4cash]

I think you need to rewrite you personal mission statement. It should not read to have a certain amount of money by various dates. It should describe a way of living. If you write it correctly it will answer your question.

Good point. For some reason, it becomes easy to focus on either debt or savings when both should be considered together. This is what ticks me off about credit reports and credit scores........they only review your debt.

Consider resetting your objective to "Net Worth" rather than savings, and you will probably find that you will still meet that objective, which in the end is a better benchmark.

 

[Texas Proud]

i guess i should've re-worded this thread to say "WHY DONT I WANNA pay off these pesky credit cards..."

I know i have to, and will, (going to the bank now to transfer some funds), but it's wierd that having xxxxx in the bank is so huge to me that i'd consider continuing to pay 50/month just for the privilege!

I am bad at remembering... but aren't you the air duct guy

if so, then you might need more of a dollar cushion than others until you know how your business runs in up and down markets...

But, you have the same mental problem that my BIL has... more money in the bank equates to being richer... it doesn't matter if you OWE $5 million or not... just that you can say you have $$$s in the bank... I have seen this in a number of people... you will have to rewire your brain for this one... not easy..

 

[Dog]

Hi Fed,

My DH is similar. He gets fixated on the number in savings account. Sometimes he will suggest making a smaller payment on the cc bill rather than transferring $ from savings to cover a month that may have had higher expenses. I remind him why we have money sitting in savings...to cover the unexpected expenses (just had to replace the water heater).
And, just think about how good it will feel to be deposit an extra $50 into your savings account each month. You may even be motivated to save more just to get your balance back where you want it to be. It's your call, but paying off the cc debt seems like the way to go.

 

[Alan]

It's a no-brainer for me - pay off the cc debt.

However I understand the mental issue. I used to be great friends with a guy who had $400K in his checking accout and yet had a car note. He owned about 17 rental properties, worked as an engineer in the same company as me but said he had always had a car note and didn't want to spend cash an a depreciating asset. I could not see the logic but that was the way he was and who was I to argue with a multi-millionare :

 

[brewer12345]

If you really need the MM funds for liquidity, then keep them and use incremental cash flow to kill the cards. If you have more liquidity than you need...

 

[TromboneAl]

But then I wont be at my target $$$ in liquid funds

Your liquid funds are for emergencies, right? So pay off the cards, and if you have an emergency, use your credit card. Am I missing something?

 

[ERD50]

Your liquid funds are for emergencies, right? So pay off the cards, and if you have an emergency, use your credit card. Am I missing something?

You have it right Al.

The money in the savings account is an 'illusion'. $6K of it is not really there, because there is a negative $6K in cc debt.

The credit card makes so much more sense as an emergency fund in this case. If one is careful, they will not need to tap it, and the 'real' emergency savings fund will grow faster now that no money is going to interest.

Most things that people call 'emergencies' really are not. They are either predictable or avoidable. There are unfortunate exceptions, of course.

-ERD50

 

[Helena]

elementary

The power of compound interest is an amazing thing...
but only if one is on the right side of the equation

 

[CRABBY JERRY]

Would anyone take money out of mutual funds that are doing well to pay off under 6% credit card dept. I am having the same feeling as the original post with letting go of savings when I am doing better. Tromboe Al has also brought up an excellent point that I haven't heard in a while.I guess if you can stay away from charging, use the money and pay it off and be dept free.

 

[jazz4cash]

Would anyone take money out of mutual funds that are doing well to pay off under 6% credit card dept. I am having the same feeling as the original post with letting go of savings when I am doing better. Tromboe Al has also brought up an excellent point that I haven't heard in a while.I guess if you can stay away from charging, use the money and pay it off and be dept free.

No.......most would not. Funds in a mutual fund would probably be subject capital gains if sold, so thats also a consideration. The OP had savings in a MM account earning 5.4% and his debt was at 10.x%. Your debt at 6% is a relatively good rate for a credit card.

 

[bssc]

No, but then I work for a credit card company and that is one of the ways that we make money.

 

[CRABBY JERRY]

Thanks Jazz4cash. Thats the way I was thinking but wanted some other thoughts. I guess the problem that gets me in trouble is that the rate is low like my 5% mortgage, and I end up charging more than can be paid off each month and the balance increases more than I would like. We have to seriously stop buying stuff that is not necessary.{mostly me}

 

[Texas Proud]

Thanks Jazz4cash. Thats the way I was thinking but wanted some other thoughts. I guess the problem that gets me in trouble is that the rate is low like my 5% mortgage, and I end up charging more than can be paid off each month and the balance increases more than I would like. We have to seriously stop buying stuff that is not necessary.{mostly me}

WOW..... you have another problem then...

And I disagree with the other poster.... yes, I would sell and pay it off... how do you know it will earn more over the next year

If you are spending more than you can pay, this is NOT LBYM... you need to get into the habit of ONLY buying things on a CC that you can pay 100% at your next billing cycle..

IMO, anybody who carries a balance (except for a zero interest or very very low) will spend more money than if you paid it off every month... it is a habit... you think about what money you have BEFORE you charge, not when the bill comes in...

 

[maddythebeagle]

IMO, anybody who carries a balance (except for a zero interest or very very low) will spend more money than if you paid it off every month... it is a habit... you think about what money you have BEFORE you charge, not when the bill comes in...

that brings up another issue...I have a bunch of cards that not only give 0% for balance transfers but also for purchases....you could always keep one or 2 offers current for "emergencies"...I even have one right now going with chase for 15 months...but as noted, dont use credit cards for consumption

 

[jazz4cash]

Thanks Jazz4cash. Thats the way I was thinking but wanted some other thoughts. I guess the problem that gets me in trouble is that the rate is low like my 5% mortgage, and I end up charging more than can be paid off each month and the balance increases more than I would like. We have to seriously stop buying stuff that is not necessary.{mostly me}

that does sorta change things. As Texas said........thats another problem. If your spending is not under control, it maybe does not matter whether you pay off or not. The low CC interest rate should not influence your spending.......but if you really have changed your spending habits, then I would stand by my previous response.