I deal with banking, budgeting, and saving at my work, and somehow I've gotten kind of a reputation as the "go-to" guy as far as those things go.  ...if that makes any sense.  So, yesterday one of my coworkers calls me and asks if I'll help her mother-in-law organize and pay her bills every month!  She says about 4 hours of work once a month, and her husband will pay $15 an hour - maybe more!  Woooo!  That's $60 a month!  The question is: Do I put it in savings (which needs some desperate beefing up) or on my credit cards?

Has any one else thought about using thier penny pinching skill to work?

I could go either way on this:  Your credit cards cost more than you'd make in savings, but you *must* have savings to handle unexpected events.

I'd build a *minimal* emergency fund in savings first.  It's far too expensive to pull cash from your credit cards if you need it, and cash (in savings) is King!  (Always better than credit.)

But, after the *minimal* emergency fund (not all you'd want in there, but a minimal amount you think is significant to help you in a pinch), I'd throw *everything* at paying off your credit cards.

Remember, *not* buying something on your credit card is the same thing as paying more on your credit card!

I'd say to put it all against your cards. Yes, you should have savings to deal with unexpected events, but in my mind paying off the debt is more important due to the huge discrepency that you'll see between interest owed on your cards and interest earned in a savings account. Long term, you should do better to pay off the cards, whether you have an unexpected event or not, assuming that you'll still have credit available to use if you do.

Think of it this way: without savings, you might have to put X amount of dollars on your credit card in the event of an emergency, but if you're pulling money that you would be putting on your card in order to build your savings, then that X amount of dollars is essentially already there, and it's been earning interest the entire time as well.

My husband, who is currently "training" me on money, says this over my shoulder:

"At $60/month, you're looking at $700/year.  That can go right to your credit card, which is likely charging a higher interest rate than your savings account is making.   You'd be saving MORE money each month because of the interest you're NOT being charged on your card.  But by all means, once those cards are gone, throw it at savings."

But, after the *minimal* emergency fund (not all you'd want in there, but a minimal amount you think is significant to help you in a pinch), I'd throw *everything* at paying off your credit cards.

This would be an excellent approach and the opportunity cost is fairly minimal here's why:
$60 per month:
700/yr @ 5% = $35 per yr
700/yr @ ~18% = $126 per yr

By putting the money in savings instead of your debt you would essentially be losing $91 for the year ($35 - $126).  However a hundred bucks or so lost is a small price to pay to make sure a healthy emergency fund is established.  Otherwise, you would be right back where you started if you were forced to pay an emergency expense with a credit card (and back to square one).

I agree 100% with the previous response.  Savings, at least for an emergency fund, is critical first.  Without that cushion you would need to rely on your credit cards in the case of an emergency.  That's how we got into our huge problem in the first place.

To answer the other question, if I weren't trying to maintain focus on my current home business, I would consider doing financial consulting.  But who would rely on me if they knew my situation?

Last edited by WannaBeDebtFree (2007-08-11 17:52:36)

purpnexnex wrote:

But, after the *minimal* emergency fund (not all you'd want in there, but a minimal amount you think is significant to help you in a pinch), I'd throw *everything* at paying off your credit cards.

This would be an excellent approach and the opportunity cost is fairly minimal here's why:
$60 per month:
700/yr @ 5% = $35 per yr
700/yr @ ~18% = $126 per yr

By putting the money in savings instead of your debt you would essentially be losing $91 for the year ($35 - $126).  However a hundred bucks or so lost is a small price to pay to make sure a healthy emergency fund is established.  Otherwise, you would be right back where you started if you were forced to pay an emergency expense with a credit card (and back to square one).

I love it when people bust out the calculator and do the math!  It puts things into perspective.  Great advice!  I agree that eliminating the NEED for debt is just as important as eliminating the debt one already has.  Thanks!

If this works and you're able to make the extra $60 a month, I say start spreading the new service by word of mouth and be sure to have your co-worker, her husband and their mother do the same.  Before you know it, it'll be a client-based business and you'll have hundreds of dollars a month vs. hundreds a year.  Not sure what you're monthly work schedule is but 4 hours a month is minimal.  With 4 clients at the same rate, that's $240 a month and you can do the work on a weekend from say 8am - 12pm.  Not too bad. 

ted wrote:

If this works and you're able to make the extra $60 a month, I say start spreading the new service by word of mouth and be sure to have your co-worker, her husband and their mother do the same.  Before you know it, it'll be a client-based business and you'll have hundreds of dollars a month vs. hundreds a year.  Not sure what you're monthly work schedule is but 4 hours a month is minimal.  With 4 clients at the same rate, that's $240 a month and you can do the work on a weekend from say 8am - 12pm.  Not too bad. 

Ya i would agree with ted, its a great investment. To help you earn a little extra.

Congrats,
  On the extra income. I would put I in a emergency fund. There is nothing like a extra cushion. This was one of the first things I did. Not having enough money dinged my credit, jacked up my interest rates because of late pays and for two years my life was a wreck. Maybe you will get more clients offer a discount like new sign ups get one month free with three months service. Anything to keep the cash flow going and yourself occupied with other things other than the temptation to spend or buy anything.. Stay focused. And the debt should go down.