hypothetical question: you get $1400 tax return ...

[Fashionista]

what would you do?

you file your taxes and get a $1400 refund.

you have a job but because your job is being outsourced you may be laid off. currently you do not have enough saved to cover you a few months until you find another job. you are not sure if you will be laid off or not but you assume the worse scenario.

you also have a credit card bill for $950. the card has very high interest

do you pay the CC off saving yourself hundreds of dollars in interest and getting that from over your head or do you put the money into your savings until you can get a definite answer on your job situation?

[Xander]

Pay off the CC. The debt will just keep getting larger. Cut back on everything you can (movies, coffee, etc.). Save like crazy and find another job. Work at ANY job while inbetween permanent jobs (Wal-Mart, McDonalds, whatever). Also, file for unemployment.

[MrNCG23]

depends on probability of job being outsourced, current savings, current income

[Fashionista]

depends on probability of job being outsourced, current savings, current income
your job WILL be outsourced, but it is uncertain whether you will be laid off or allowed to transfer somewhere else.

salary is low and savings isn't enough to cover you

[Fashionista]

Pay off the CC. The debt will just keep getting larger. Cut back on everything you can (movies, coffee, etc.). Save like crazy and find another job. Work at ANY job while inbetween permanent jobs (Wal-Mart, McDonalds, whatever). Also, file for unemployment.

the hypothetical is based on a convo me and my friend were having about what would you do in the situation

he said the same thing you said about paying off the debt but i said i would hold on to the tax return and out it in savings until i had a definite answer from my job.

omn the one hand it makes sense to use the money to live off of and pay the minimum until something better comes along but i can also see the perk of nailing the debt and never having to worry about it again. *shrug*

[asm198]

Put it in savings. It would be better to have a more substantial cushion of savings in case you can't find another job right away than it would to pay off the credit card and save the interest. Plus, if you pay off the card and lose your job, you might be more tempted to start using the card for essential things, so then you'd just be back where you started.

[littledancerus]

pay off the card. It wouldn't get rid of the entire return... you'd still have over $400 left to save. Plus then you wouldn't have that bill comming in every month & you could save whatever you'd normally put towards it. Then you don't have interest building too. If you do need to start using it again after being laid off, at least you saved a couple month's interest.

[meatwad]

Pay off the card then cut it up. Get a card with a lower interest rate. Put the rest in savings and cut back on your luxuries. Save what you can until then and maybe start looking at other job opportunities now to get ahead of the game. If the interest is really hi, it's going to go on the card anyway. This way it's going against the principal and not the interest.

[winneythepooh7]

Put it in savings. It would be better to have a more substantial cushion of savings in case you can't find another job right away than it would to pay off the credit card and save the interest. Plus, if you pay off the card and lose your job, you might be more tempted to start using the card for essential things, so then you'd just be back where you started.

Agreed. Start talking to everyone and their brother about jobs. P/T jobs, temp jobs, waitressing jobs.........anything.

[Chameleon]

Another vote for savings. What are the person's monthly expenses in this case? If the person gets laid off, it would be good to have enough cash to cover rent for a month or two without putting it on your credit card.

[beeblebrox]

All of the personal finance blogs say to pay off high interest credit card debt first. So, pay if off first before tackling savings. My bf still has some debt and paid off two credit cards and cancelled them. He's got one remaining. Once that's paid off, he'll start saving and entering into his 401k.

[Spinney]

I'd pay off the card. The last thing you want when you're unemployed is a balance on a high interest credit card, or any card for that matter. Sure you could just make the minimum payments, but the problem is that over time those minimum payments will grow as the debt spirals out of control.

If there were no savings at all and I knew I couldn't get some other crappy job to hold me over I could see keeping the return and telling the credit card company to f--- off. Then there's also bankruptcy if it came to that...although I'd hate to do that over a $900 debt.

[Xander]

No, I wasn't joking. Always pay off the credit card. Living off of a small savings with big CC debt will ruin you for the long term, especially when you're unsure about future income. When it comes to finances, don't think short term solution.

[LaFille]

what about paying off $500 of your credit card to cut the interest you are paying in half, and then having some money to live off of as well? or is that cheating in this hypothetical situation?

[Dude]

How about taking a 0% interest offer on another credit card and transferring the balance. After doing that, put the tax refund into your savings.

[jrwilheim]

what would you do?

you file your taxes and get a $1400 refund.

you have a job but because your job is being outsourced you may be laid off. currently you do not have enough saved to cover you a few months until you find another job. you are not sure if you will be laid off or not but you assume the worse scenario.

you also have a credit card bill for $950. the card has very high interest

do you pay the CC off saving yourself hundreds of dollars in interest and getting that from over your head or do you put the money into your savings until you can get a definite answer on your job situation?

I'm of mixed minds about this scenario. I can see the logic of paying off the card, but in a situation where you have no income coming in, I can also see the logic of holding onto the money and stashing it in the emergency fund.

For me, it would depend on how large the monthly credit card payments were. If you're barely able to make the minimum on the $950 debt, I'd say go ahead and pay it with the tax refund. You'll be better off not having to come up with approx. $50 a month to pay that bill while you're unemployed. If this isn't a concern, I'd say stash the money for now, continue to make regular payments on your credit card debt while unemployed, and use the to pay off your debt when you are working again.

[Fashionista]

what about paying off $500 of your credit card to cut the interest you are paying in half, and then having some money to live off of as well? or is that cheating in this hypothetical situation?

i don't think it is cheating...?

the only thing that was said was $1400, possiblity of no job but have a $950 high interest debt

i assume since rolling over the debt into a lower interest card was not mentioned it is not possible and what type of card it is was not mentioned either it could a general CC or a department store CC.

[Xander]

i assume since rolling over the debt into a lower interest card was not mentioned it is not possible and what type of card it is was not mentioned either it could a general CC or a department store CC.
You could do that, but I don't know anything about transferring debt to another CC. My opinion is if you're playing with debt, you'll never win.

You're also assuming you will have zero income, which is not true. You can (and should in some circumstances) file for unemployment, or get an easy-to-obtain job, as I've stated before. People our age think debt is tolerable... I can't comprehend this at all, especially if you've taken any accounting courses.

[WorkInProgress]

Pay off the CC. The debt will just keep getting larger. Cut back on everything you can (movies, coffee, etc.). Save like crazy and find another job. Work at ANY job while inbetween permanent jobs (Wal-Mart, McDonalds, whatever). Also, file for unemployment.
Ditto this.

[Jedi of Zen]

pay off the card. It wouldn't get rid of the entire return... you'd still have over $400 left to save. Plus then you wouldn't have that bill comming in every month & you could save whatever you'd normally put towards it. Then you don't have interest building too. If you do need to start using it again after being laid off, at least you saved a couple month's interest.

That's kinda my thought too.

[asm198]

The reason I said to stash the cash is because I was in a similar situation. I had some credit card debt and lost my job. I couldn't find any kind of job for 6 months and ended up having my credit cards charged off. It tanked my credit score. If I had more available money at that time, I could have at least saved myself from having the credit cards charged off because I'd at least be able to pay the minimums on them. Yeah, I'd be racking up interest, but that's much better than having negative notations on my credit report.

All the money I had when I lost my job went towards a new living situation, so I ended up using one of my credit cards to pay utilities and for food. I figured it was a temporary situation and that I'd get a job quickly and be able to pay off the debt. As I said, that didn't happen and I was out of work for 6 months. I was using my credit card to live and it bit me in the ass later. That was 4 years ago and I'm still trying to take care of the mess.

[lostindc]

Pay off the card - you can always charge up the $950 again in the future if you run into problems. Keeping the balance will be like adding an additional $10-$20 expense each month.

Actually the first thing to do is look at your W2 withholdings, because if you are getting that much back you may not be claiming enough exemptions.

[Fashionista]

Pay off the card - you can always charge up the $950 again in the future if you run into problems. Keeping the balance will be like adding an additional $10-$20 expense each month.

Actually the first thing to do is look at your W2 withholdings, because if you are getting that much back you may not be claiming enough exemptions.
although it was a hypothetical can you explain this comment?

[Fashionista]

The reason I said to stash the cash is because I was in a similar situation. I had some credit card debt and lost my job. I couldn't find any kind of job for 6 months and ended up having my credit cards charged off. It tanked my credit score. If I had more available money at that time, I could have at least saved myself from having the credit cards charged off because I'd at least be able to pay the minimums on them. Yeah, I'd be racking up interest, but that's much better than having negative notations on my credit report.

All the money I had when I lost my job went towards a new living situation, so I ended up using one of my credit cards to pay utilities and for food. I figured it was a temporary situation and that I'd get a job quickly and be able to pay off the debt. As I said, that didn't happen and I was out of work for 6 months. I was using my credit card to live and it bit me in the ass later. That was 4 years ago and I'm still trying to take care of the mess.

i can sympathize with this situation cause the same thing happened to me and some of my friends.