Sunday, July 6, 2008

The Answer I Have Been Looking For

Trent at the Simple Dollar recently posted about starting a Debt Savings Account.

My first thought was, this would not work for most people because the minute something came up (not an emergency) they would be tempted to spend it. I still feel that way, but I thought of a great way to make this work for me in a few years.

First of all, I have done this before. You will remember it as my crisis plan. This was where I continued paying only the minimums on my debt and saved like crazy for the baby. I still have the huge chunk of money because we are now fighting with the hospital just to get our claim filed. However, my plan for this money once that happens is to pay off a LOT of our debt. That is still my plan.

Trent, however, asserts that for emergency purposes it may be better to save up the money and once you have a nice sized emergency fund and have cash that goes above and beyond that you should throw a large chunk at your debt.

Here is my problem with that. Because I was not staying on budget so well the past few months, several times we have dipped into savings to cover groceries etc. (I am talking $20 not $200) So, that temptation to use the money for "other" things is huge. And, I believe it is mostly subconscious. For example, I was not planning on spending that money, but I knew it was there so I was NOT as careful with my grocery budget. If the money were gone, and all I had was my small emergency fund, I would make sure the money was not touched. I guess this would be a decision based on your personal will power... but all of us debtors got here the same way!

Now, having said that, this is a GREAT idea for my final debt. My student loans!! Instead of paying more money on it when I get to that point, I will put it in savings. This serves two purposes. One, of course is that I will still have the money to pay the debt off no matter what happens. The other thing is that IF I am allowed to have $5000 forgiven, I won't have paid that already. That money will just be extra savings and will be a great start to my bigger E fund.

So, read Trent's post and see if there is a way this can work for you. I made it work with my crisis plan and hopefully I will get it to work for my student loans too. Let me know what you think!!


Jen said...

I just realized I did not explain too well. I may qualify to have $5000 forgiven under the teacher/nurse forgiveness act. (Makes it sound like we did something wrong, lol)

Proto J said...

Hey Jen,
Just wanted to say hello and let you know I like your blog so far. I have been reading The Simple Dollar and Get Rich Slowly for about the last month or so. I love those two sites, they are so helpful and inspiring. Do you know of any other good finance blogs? I recently just got out of debt, but am working a crappy job and it is hard to save up a lot of money. I am reading up on ways to make money through online business, ads on websites, that sort of thing.

Anyway, Keep up your great blog and I hope your finances are doing well! Talk to ya later.

- Jack

Jen said...

Thanks a lot!! Most of the blogs I read most often are on my sidebar under "blogs I read". There are some others but nothing I read too regularly. Those two sites are probably the two I read MOST often especially Simple Dollar.. GRS has gotten away from financial posts that are helpful to beginners lately. (Which is what I like to read) I am glad you are enjoying my blog. It is nice to know I have some readers out there!!!