In today’s “Ask LDG” a Love writes:
“So I had plans to pay off my credit card debt with my tax return but now with all this uncertainty with the economy I’m wondering if if it’s still a good idea right now. Should I hold on to the money until everything settles down and then pay? What do you think? “
In any other time, uncertain or not, I would like to think my response would be the same(ish).
First, I would assess how much I have in my emergency fund. The old-tired advise of “he who shall not be named” of having a starter emergency fund of $1,000 has proven not enough in times of true emergency. Ask yourself “Can I house and feed myself for 3- 6 months with the money I have on hand right now?” If not, into the emergency fund it goes. Some people may even feel more comfortable with an emergency fund that can last longer but it isn’t as easy to save for a year plus emergency fund. I felt an immense sense of relieve when I hit 3 months and then continued to contribute but not as intensely as I make my way to a year’s worth of expenses saved.
Next, If you assess your emergency fund and you feel like you are in a solid enough position to cover your four walls for at least 3 months, then I would consider still holding onto the tax refund money for a little bit or even split it between the credit card and my emergency fund. The next few months will be very trying. Unemployment will rise. We haven’t hit the worst of it yet. Paying a little extra in interest in order to hold onto a little extra security net is worth it to me. When we are on the other side of this then you still have the ability to make a lump sum payment and wipe it out. Think of it as a delay not that you won’t ever pay it off.
I know I’ve heard people say they are feeling impatient and want to pay off their debt and tighten up if things get rough. That is your choice. If paying off the debt gives you a sense of accomplishment and lowers your monthly outflow, my advice be damned “Do you!” There is really no hard and fast rule that works for everyone.
Lastly, it must be said: Both carrying some debt or even going back into debt in order to prioritize survival during this time is- OK. This is not the time to beat yourself up.
Comment below if you know exactly how much it costs to keep a roof over your head, pay your bills, and food in your stomach? If not, comment below if you would like a post on how to figure that out!
Other articles you might like: The Debt Free Journey or Start a Family?
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