Question for the Money Doctors
Question submitted on Mar 27, 2011.
QuestionI have good credit (740) and I pay all of my bills on time. I currently have myself in a hole of about $10,000 (credit cards). I have no savings and I need a car. The car I have is high mileage. It also has a lein that will be paid off in two months. I am torn between saving money for repairs/down payment OR paying more towards the credit cards. Should I consilidate the credit card debt? Should I save or pay? Thanks!
The credit card debt that you have is likely high interest. As a result, I would pay off the credit card debt first. With your auto debt being paid off in a couple of months, you should be able to pay off the credit card debt even faster. Next, I would quit using the credit card. Keep it, but ONLY use it for emergencies (such as possible car repairs since you have now used your cash to pay down debt). Third, create an emergency fund of 3-6 mos worth of living expenses. Only after you pay off your credit card debt and create an emergency fund would I consider buying a new car. Lastly, once you create an emergency fund, you should likely not need to use that credit card ever again, unless you are renting a car or something along those lines.
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