Emergency Fund Destroyed. Back to the Side Hustles?

[Millard Fillmore]

I’ve learned my lesson about abusing credit cards. Once they’re paid off, I wouldn’t be against putting everything on them and then paying them off at the end of every month just to take advantage of rewards/points.

This is what I do these days. Actually the rewards and points are vastly overrated IMO. But I use credit cards for online purchases, hotel reservations and the like so that if there's a fraud, theft, or dispute the credit card people will back me up.

The airline miles and other rewards are fine but nothing is as "rewarding" as living debt free.

 

[nicksaiz65]

This is what I do these days. Actually the rewards and points are vastly overrated IMO. But I use credit cards for online purchases, hotel reservations and the like so that if there's a fraud, theft, or dispute the credit card people will back me up.

The airline miles and other rewards are fine but nothing is as "rewarding" as living debt free.

I do like the idea of being debt free a lot, but I wonder if I can get there. I don't want a mortgage tying me down, so the biggest issue would be the car. Cars, even used cars, are so expensive nowadays.

I can definitely reach the point where the only debt I have remaining is a low-interest car loan though. Once I hit that point, I'm ready to invest.

You know how people say "debt free except for my house?" For a bachelor like me, maybe I'll say "debt free except for my car" haha.

 

[Millard Fillmore]

I do like the idea of being debt free a lot, but I wonder if I can get there. I don't want a mortgage tying me down, so the biggest issue would be the car. Cars, even used cars, are so expensive nowadays.

I can definitely reach the point where the only debt I have remaining is a low-interest car loan though. Once I hit that point, I'm ready to invest.

You know how people say "debt free except for my house?" For a bachelor like me, maybe I'll say "debt free except for my car" haha.

You can always live out of your car

 

[nicksaiz65]

When you pay down high interest rate debt, no interest is owed on the part that is gone.

I slept on it a bit, and I wanted to specifically talk about this sentence on your post.

I think that this is a very good point to make. By that logic, you could make a strong argument that it makes more logical sense to abandon any side jobs because both my pay, and level of responsibility have gone up significantly. Even though I am still vulnerable to emergencies at the moment, I could just take out a loan and keep it going while maintaining 100% of my time to go towards my new tech job and ensure that I get this contract renewed, and that $120K salary coming. That tech salary is what's going to get me out of this mess, and if I didn't have that income, I would be screwed.

It is definitely true that if an emergency came up that exceeded my debt payoff rate, I would have to take out another loan to cover the difference. It's also true that the interest rate on that debt would be disgusting on said debt(due to me needing more time to raise my credit score.) But, if I were to move that high interest loan to the top of my snowball, then I could attack it and pay it off completely before I was damaged too badly by the accruing interest.

If I kept this up, I think we could all agree that eventually my rate of payoff would exceed the rate of the emergencies, and then I would be secure with a savings.

As I continue to think about it logically, this might make more sense than me sacrificing my time by running off to cook at some restaurant 2x a week, instead of focusing on my primary job that is paying me $60/hour. Things are different now that I have this job that pays me more, and you could argue that the time lost at a side job to try and prevent emergencies would damage me more than any amount of interest in the short-term while I continue to build my base.

Programming is an extremely taxing job. It would be good to have my time completely freed up, so that I know with 100% certainty that I have enough time to get my work done and I can throw literally everything I have at it. God forbid if I were to ever lose my tech job, I would literally be up a creek and there would be nothing that I could do. That high income is really the only thing that is saving me right now with all this debt hanging around haha.

While 2 days a week at a side job may not sound like much on paper, 2 days of extra studying a week can literally be the difference between me just skating by at my job(or even not getting my work done extra worst case) vs. me passing with flying colors. Therefore, it could be argued that it is preferable to just eat the interest in the short term if an emergency comes up, move it to the top of my snowball, and that it's actually more dangerous to have a side job because it takes away from coding. Even though I hate the idea of potentially taking out more debt, it is preferable to diverting any time at all away from my tech job, and dealing with high interest in the short term is preferable than reducing my performance as a programmer even a little bit. I can absolutely make the payments(because of my high income), and it would just temporarily slow down my debt payoff a bit. That seems like a better alternative than potentially screwing myself at my tech job due to losing 2 days a week of my time. Obviously, I need to do everything I can to keep my expenses low and keep budgeting.

Ok, just had to get my thoughts onto the page and explain my reasoning again. I should be done writing any more essays in this thread haha.

 

[nicksaiz65]

You can always live out of your car

A hell of a lot cheaper than renting

 

[FlirtLife]

Yes, this is correct. I can order the debts from highest interest rate to lowest:

Credit Cards
Personal Loans
Car Loan
Private Student Loans(Sallie Mae)
Federal Student Loans

What is really irking me is the credit cards and personal loans. They are high interest and have to go. Once those are eliminated, and I have a decent emergency fund(the $10-12K that we were talking about) then I'll be just fine, and I think that's not too bad of a spot to be in. My next move then would be to go after the student debt, but this is down the line. I don't plan on taking any additional schooling, I don't think it would increase my earning potential relative to the amount of debt that I would need to take out. I'm lucky that the student loans are pretty low interest.

I'd like to go after the smallest credit cards because those are what is dragging my credit down into the dirt. Plus, as I pay them off, the money from the now gone payments gets rolled into the debt payoff like other posters were saying.

If an emergency comes up, try and keep perspective about your overall credit card and personal loan debt. An emergency can delay you, but is very unlikely to ruin your plan to pay off debt.

What if you had $30,000 in CC debt and a $3,000 emergency comes up? If your plan was to pay off CC debt in 10 months, maybe now it takes you 11 months. An unexpected need for cash is likely to be much smaller than your existing debt. It is very likely to be a delay, and not ruin the overall strategy of paying down loans. Your CC debt is the emergency, and a new emergency will be much smaller by comparison.

If you took out the car loan when you had bad credit, that loan might be worth paying down. I would still favor getting $10-$12k in an emergency fund first. But once you get past $10,000 in cash, any mix of saving money and paying down the car loan can work.

The way I view it, student loans come last. If your contract doesn't get renewed, an emergency fund can pay the rent. If you instead pay down student loans, and lack the emergency funds you need, you could wind up in credit card debt again. The money you pay to a student loan cannot be withdrawn later. I think you should have months worth of expenses in cash (an emergency fund) before going after student loan debt.

 

[nicksaiz65]

If an emergency comes up, try and keep perspective about your overall credit card and personal loan debt. An emergency can delay you, but is very unlikely to ruin your plan to pay off debt.

What if you had $30,000 in CC debt and a $3,000 emergency comes up? If your plan was to pay off CC debt in 10 months, maybe now it takes you 11 months. An unexpected need for cash is likely to be much smaller than your existing debt. It is very likely to be a delay, and not ruin the overall strategy of paying down loans. Your CC debt is the emergency, and a new emergency will be much smaller by comparison.

If you took out the car loan when you had bad credit, that loan might be worth paying down. I would still favor getting $10-$12k in an emergency fund first. But once you get past $10,000 in cash, any mix of saving money and paying down the car loan can work.

The way I view it, student loans come last. If your contract doesn't get renewed, an emergency fund can pay the rent. If you instead pay down student loans, and lack the emergency funds you need, you could wind up in credit card debt again. The money you pay to a student loan cannot be withdrawn later. I think you should have months worth of expenses in cash (an emergency fund) before going after student loan debt.

Totally agree with this take. I think the personal loans need to go right after the credit cards(they are pretty close interest-wise) and then that alone alleviates a ton of payments. Once that's gone, I can build up an emergency fund very quickly.

 

[jaygreenb]

This is what I do these days. Actually the rewards and points are vastly overrated IMO. But I use credit cards for online purchases, hotel reservations and the like so that if there's a fraud, theft, or dispute the credit card people will back me up.

The airline miles and other rewards are fine but nothing is as "rewarding" as living debt free.

If you do not have the discipline to pay them off every month or overspend using them the rewards just are not worth it. If you can use them properly, its just some nice little perks. If you aren't in the best financial position, can be too tempting to use.

It seems like everyone has to learn this lesson once, and then never again haha.

I’ve learned my lesson about abusing credit cards. Once they’re paid off, I wouldn’t be against putting everything on them and then paying them off at the end of every month just to take advantage of rewards/points.

Yep, I have had to learn a lot of lessons the hard way lol

 

[nicksaiz65]

If you do not have the discipline to pay them off every month or overspend using them the rewards just are not worth it. If you can use them properly, its just some nice little perks. If you aren't in the best financial position, can be too tempting to use.


Yep, I have had to learn a lot of lessons the hard way lol

I've heard some people say that if you've ever been charged a cent of interest in your life, you are not a "credit card person."

I wouldn't go as far as closing the accounts though. That would decimate my credit. I would just put some groceries on them and instantly pay it off, or something like that.

 

[member162951]

I do not carry high interest consumer debt. I went to a cash basis net 30 life decades ago after going through the same debt fiasco in my 20s. I carry one charge card and pay it off every 30 days.

HI @BeExcellent , question re: this^ esp bolded.

I recently paid off all my credit cards and charge everything to my bank debit card which is withdrawn from my checking account. Except for one low interest personal loan, I have no debt.

I did not cancel the credit cards.

My credit score went DOWN by approximately 70 points! My financial advisor said this can happen initially after paying off or paying down credit cards, and advised me to maintain a small balance on one credit card ($500-$1000) which looks better to the credit bureaus (FICO, Equifax) than maintaining zero balance with obviously no interest.

What do you think about that? I could do what you do, pay off the balance every 30 days with no interest and maintain zero debt, but how would this affect my credit score?

I don't own any properties; I am considering obtaining a business loan which is why this concerns me.

You seem like a very financially savvy woman which is why I'm asking you.

A second opinion I suppose, thanks!

 

[nicksaiz65]

HI @BeExcellent , question re: this^ esp bolded.

I recently paid off all my credit cards and charge everything to my bank debit card. Except for one low interest personal loan, I have no debt.

I did not cancel the credit cards.

My credit score went DOWN by approximately 70 points! My financial advisor said this can happen initially after paying off or paying down credit cards, and advised me to maintain a small balance on one credit card ($500-$1000) which looks better to the credit bureaus (FICO, Equifax) than maintaining zero credit card debt.

What do you think about that? I could do what you do and maintain zero debt, but how would this affect my credit score?

I don't own any properties like you do.

You seem like a very financially savvy woman which is why I'm asking you.

A second opinion I suppose, thanks.

This is a very good question.

I'm a good bit away from paying off my student loans, but I wonder if the same applies to those? The student loan is my oldest account.

 

[member162951]

This is a very good question.

I'm a good bit away from paying off my student loans, but I wonder if the same applies to those? The student loan is my oldest account.

Yeah it does seem like the credit gods look more favorably on those who maintain a small balance with monthly interest (even if low) versus someone with no balance and no interest (i.e paying balance off every 30 days).

But I'm not sure, which is why I asked @Be or if anyone has an opinion about it.

 

[BackInTheGame78]

This is what I do these days. Actually the rewards and points are vastly overrated IMO. But I use credit cards for online purchases, hotel reservations and the like so that if there's a fraud, theft, or dispute the credit card people will back me up.

The airline miles and other rewards are fine but nothing is as "rewarding" as living debt free.

A free $50-60 on Amazon every month isn't so bad tho

 

[sangheilios]

Man, crazy how many posts there are on this thread.

You don't have an income issue, you have a problem with spending and NOT paying off your cards.

 

[nicksaiz65]

Man, crazy how many posts there are on this thread.

You don't have an income issue, you have a problem with spending and NOT paying off your cards.

Yeah, we hit a lot of topics lol.

And you're correct. I'm digging myself out of this hole, then never again.

 

[sangheilios]

Yeah, we hit a lot of topics lol.

And you're correct. I'm digging myself out of this hole, then never again.

Not sure if anyone has mentioned this, but this is a very common issue for most Americans. There are tons of stats coming out recently showing that even many high income earners, those making 150k+ per year, are literally living paycheck to paycheck. A lot of it is lifestyle creep but also just accumulating debt. It could start off with student loans, then a car payment, maybe a mortgage, etc. However, people then start getting subscriptions they probably don't even really need, memberships, etc. I think a very common one though is simply eating out, going to a bar to get drinks or even just stopping to get a coffee. A lot of this stuff quickly becomes a habit and naturally the money you spend adds up.

People talk about things like lottery tickets, drugs, alcohol and cigarettes but these other things I mentioned are just as much of a problem, though aren't as bad for your health though lol.

 

[jaygreenb]

HI @BeExcellent , question re: this^ esp bolded.

I recently paid off all my credit cards and charge everything to my bank debit card which is withdrawn from my checking account. Except for one low interest personal loan, I have no debt.

I did not cancel the credit cards.

My credit score went DOWN by approximately 70 points! My financial advisor said this can happen initially after paying off or paying down credit cards, and advised me to maintain a small balance on one credit card ($500-$1000) which looks better to the credit bureaus (FICO, Equifax) than maintaining zero balance with obviously no interest.

What do you think about that? I could do what you do, pay off the balance every 30 days with no interest and maintain zero debt, but how would this affect my credit score?

I don't own any properties; I am considering obtaining a business loan which is why this concerns me.

You seem like a very financially savvy woman which is why I'm asking you.

A second opinion I suppose, thanks!

Your credit score should not go down because they base it off percentage utilization, lower the better. Are you sure you did not close an account? That would lower it because it would potentially decrease the average age of your accounts.

 

[member162951]

Your credit score should not go down because they base it off percentage utilization, lower the better. Are you sure you did not close an account? That would lower it because it would potentially decrease the average age of your accounts.

I just checked all four accounts and they're still open, they each showed my available credit and zero balance.

My advisor said it's temporary so I'm not going to worry about it.

My question pertains more if I should maintain a small balance with one card versus paying off the balance each month.

My advisor said the credit bureaus look favorably upon those who actually use their credit but behave responsibly.

If you never use credit or carry a balance, they have nothing to base their score on.

I dunno, I think what @Be does is smart and wondering if maybe I should find new financial advisor?

 

[Divorced w 3]

I just checked all four accounts and they're still open, they each showed my available balance.

My advisor said it's temporary so I'm not going to worry about it.

My question pertains more if I should maintain a small balance with one card versus paying off the balance each month.

My advisor said the credit bureaus look favorably upon those who actually use their credit but behave responsibly.

If you never use credit or carry a balance, they have nothing to base their score on.

I dunno, I think what @Be does is smart and wondering if maybe I should find new financial advisor?

Your money manager should connect you to a credit and banking expert. If they don’t have one directly you should ask him for a reference to a banker that works on consumer and small business lending. If this person is that, trust them and ask as to when you can expect a credit score improvement .

 

[member162951]

Your money manager should connect you to a credit and banking expert. If they don’t have one directly you should ask him for a reference to a banker that works on consumer and small business lending. If this person is that, trust them and ask as to when you can expect a credit score improvement .

OK thanks, he does so I will have to trust him. He works at Merrill Lynch.... 15 years of experience in consumer, business and wealth management.

Just thought I'd ask for a second opinion on this thread.