Over the last few years, I’ve made one observation about myself that I find rather baffling.
First a little history, I used to have a lot of debt. A quick run down of the major stuff from the last 10 years:
Student loans: about $20K
Back taxes: about $5K
Car loan: about $8K
Consolidated credit cards: about $15K
All of those are paid off now and I have $16K in current credit card debt once again.
In the last 3 years, I was able to save $4K in an emergency fund and dutifully contribute to my 401k plan regularly. But I’m not that great at chucking all my money at the revolving debt. I put money away automatically every month into savings, even if it’s as little as $5 out of each paycheck.
I’m still trying to figure out what works for me. What works for me is moving my revolving debt to installment debt and paying that off. For some reason, that is the best way. I have stopped carrying my credit cards and that helps, but it’s not the same as irreversibly paying down an installment loan.
What is it about the psychological nature of building something up versus slowly taking something down? Is my better strategy to save up money and then throw it in a lump sum at the debt, lather, rinse, repeat? I’ve done that, and it’s definitely gratifying to write out a 4-digit check and mail it off. (I know that’s not frugal, but there is a serene ritual of satisfaction that comes from writing paper checks.)
What about you? Are you able to consistently save even though you have debt? Are you better at saving your money than paying down your debt?
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Can you set up your credit card so that you pay off a specific dollar amount each month (one that you’ve calculated will pay off the loan) and then cut up / freeze etc the cards?
I lean the other way. I love to pay down debt, but I loathe just sending money to the savings account.
Luckily when we sell our Malibu, we’ll have about $11,000 or so extra in the savings account. I’ve been wanting 6 months of living expenses saved up, so that will definitely help.
actually, i’ve never noticed if i’m better at one than the other – but i have noticed that i can’t do both well at the same time. i like to concentrate on one or the other. saving and debt repayment fight too much, so i’m just concentrating on one at a time.
I do the same thing with credit cards. I don’t carry them at all. I tend to carry my debit card everywhere. This way I don’t spend over my budget.
I think it takes the right discipline to stay out of debt.
Taking the credit card(s) out of your wallet is best first step in getting rid of that debt. I’ve done exactly the same thing with my credit cards.
I hear you, Mapgirl. I should be in the front row, madly waving my hand and admitting that (finally–after years and years of never saving)I am saving well. But the debt is going down ever so slowly–right direction, just not very fast.
I’m sure it has to do with the “out of sight, out of mind” pre-tax deduction that allows me to save in my 401 (k) without seeing the cash in my paycheck.
I’m not saving at all at the moment. I just want so badly to be out of debt, that saving just seems like a good way to keep paying interest on some part of a debt that could have been paid off. I like paying debts off gradually rather than in one lump sum, for the same reason – I know I’m paying less interest that way. I like those moments when the debt slips under the next thousand. That’s when I acknowledge that I’m making progress, albeit slowly.