My Favorite Business Resources
- Cheap Business Phone Service - Make phone calls anywhere for free or darn close to it.
- Cheap Printing - Always amazing deals on cheap printing with loads of free items.
- Manage Mobile Phone Costs - Great phone for controlling cell phone costs for business or teenagers.
- Really Good Web Hosting - As bullet proof as there is. A strong hosting provider with all the resources you need.

My Favorite Credit Resources
- Consolidate Your Debt - One monthly payment. Stop collection calls.
- Help Budgeting - Online and easy.
- Lower Your Car Payment - Refinance to reduce your monthly payment.
- Credit Report / Credit Score - This consolidated report is better than most.
- Credit Cards - Find the best card for you for low rates, balance transfer, credit rebuilding and rewards.

Oct

2008

Judy Is Worried “Should I Save or Pay Off Credit Card?”

Posted by as Ask Steve, Credit Cards, Get Out of Debt

If you're new here, you may want to subscribe to my RSS feed right now, before you forget, to get the latest posts. Thanks for visiting!

Judy wrote to me through the GetOutOfDebt.org site with her question below. If you have a question that you would like for me to answer for free, just submit it online here.

“Dear Steve,

Should I save the amount after paying off a credit card debt or pay down another.

Help please.

Judy”

Dear Judy,

You asked a great question and one that seems easy but has different valid and possible answers.

If you are digging yourself out of a debt hole the initial knee jerk reaction is to devote all your extra money to paying down the next card but I don’t think that is the smartest thing to do.

You see life is unpredictable and we never know what the next financial surprise will be. Unless you have access to some liquid cash to get in a hurry those unexpected expenses could wind right back up on the plastic, eroding any debt reduction progress you previously made.

I think the better approach is to buildup your savings account at the same time that you are trying to reduce the debt. I’m assuming that we are starting from a position that you have little to no savings to begin with.

I would suggest that after you pay off your first credit card debt that you either put the extra into a savings account for a few months to build some cushion or put half of the amount into your savings account each and every month from that point forward and use the remainder for additional debt reduction.

This approach of rolling your payments forward is know as the debt snowball approach. There are two basic theories to accelerating debt repayment. Those that are diligently organized find that extra money applied to the card with the highest interest rate makes the most mathematical sense. The the rest and majority of the population finds that it is more emotionally rewarding to focus on paying off and sending your extra payment to the card with the lowest balance. By knocking off accounts quickly you get a greater emotional boost to keep going. That’s the debt snowball approach, simplified.

Thanks for writing in.

Big hug.

Steve