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Old 07-09-2007, 11:31 AM
hannahgrace hannahgrace is offline
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Join Date: Jul 2007
Location: Quezon City, Philippines
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Question Balance Between Paying Off Debts and Investing

Hi guys. I'm new here and my head is spinning with all the things I'm learning. Since everyone seems to be giving really good advice (LOL) I might as well ask for some.

How do I strike the perfect balance between paying off debts, saving, and investing with very little money? Right now money is pretty tight. We barely make it from paycheck to paycheck but my husband's salary is set to almost double in a month or so (sigh of relief) and my part time work is also doing better. We are in debt right now but all of them are to family and friends with only one that has an interest. The interest is also pretty low (1%) per month and I plan to, of course, pay that off first. I just want to know how much money I should put into paying the debts and how much I should squirrel away in the bank or if I should invest some in mutual funds or something like that.

The expected "extra" money would be around only $200 each month. Our debt is approximately $5000. Note though that we don't even have an emergency fund right now (which we sorely need too) since it's always eaten up by all our medical bills. BTW my son has special needs and it, along with all the medical complications, are what's bogging us down financially. Any ideas on how I can maximize the $200?
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Old 07-09-2007, 06:58 PM
Dru Dru is offline
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Join Date: Mar 2007
Location: USA
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Default Re: Balance Between Paying Off Debts and Investing

Welcome to the Forum Hanna,

For right now, forget about the investing portion. It is more important to pay off your debt and build your emergency fund.

How much do you like your family and friends? Although they may not say anything, they are watching to see how you treat their trust and the future of your relationship depends upon it. Even though you are tempted to pay off the account charging interest @12% ARP , I would suggest that you also make regular (lump sum) payments to family and friends. That may mean paying $50 or $100 dollars here or there to let them know you take the loan seriously. Organize the debts from smallest to largest, paying off the smaller ones to free up more money to make larger payments on the larger balances. Gradually add to a savings account (money market account paying higher interest) to build your emergency fund.

You say your income is about to double, yet you will only have an extra $200? This doesn't sound like you are too worried about getting rid of the debt. Where is the rest of the new money going? Continue to live on a frugal budget until the debt is gone, then you can use those dollars to invest. If your family sees you driving a new car bought with those additional dollars, or going off on a fun holiday, or buying the new plasma TV set, they will realize you have little concern over their money, or their trust.

I understand that medical needs for children can be a great burden and if you are traveling to Dr. offices or hospitals it can get costly. Be careful not to justify spending money needlessly that you need for other things. Buying toys, food, balloons and so on is something you can control when in these situations. If the special needs are more for educational things, look for opportunities to buy at a discount through groups or associations that deal with the condition.

In any case, it will take both of you agreeing that getting rid of debt is a high priority and nothing short of success will be accepted.
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Old 07-10-2007, 02:06 AM
hannahgrace hannahgrace is offline
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Join Date: Jul 2007
Location: Quezon City, Philippines
Posts: 9
Default Re: Balance Between Paying Off Debts and Investing

Hi Dru. Thanks for the reply. As unbelievable as it may seem the extra money will only be around $200 a month. Right now we are working on a huge budget deficit so that the doubled salary will cover just the basic needs. By a doubled salary I mean that we'll be making about $800 to $1000 per month combined now. So the budget is really really well not almost worth calling a budget (LOL). Just gave the figures so you'll realize the scale we're operating on. The salary situation in the Philippines is really really far from developed countries so that $200 actually is the net salary of plenty of people here. The good news is that with strict budgeting the new salary will mean that we won't have to cut my son's therapy sessions to half of what he currently needs.

Believe I know about being frugal. We don't spend much on extra (though I do allow my husband and I to see one or two movies a month and that's about it...no eating out). We didn't even hold a birthday party for my son just so we won't go deeper in debt.

I did talk to one of my friend (to whom we owe the bulk of debt $3000) and he told me to pay him after we've paid all the others. So i guess we will start with the smaller debts. I thought I would be paying the $200 all at once to one person but it seems that as you said it'll be better to split it.

BTW how much should I aim to save as an emergency fund?
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Old 07-10-2007, 02:18 AM
Mark A Mark A is offline
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Join Date: Mar 2007
Location: Wisconsin USA
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Default Re: Balance Between Paying Off Debts and Investing

3-6 months income is good for an emergency fund, but to start aim for $1000, pay off some debts, go for $2000, etc. Eventually you'll be out of debt, and can start investing this money knowing that if your investments fail at least you will have something earning a guaranteed interest rate as a backup.
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