I am wondering what everyone elses opinion of their debt, paying off their bills is?

DH and I have saved enough money to pay off all of our debts.  But in light of the economy, we are saving all the money we have just incase the economy gets even worse, which we look to happen before long.

Just wondering if you would take the money, pay off those bills and be broke or save it?

The main reason that we are not paying those bills off is none of the items that we owe for, are "necessities." Which means that if the bottom drops out of our economy, and the creditors repossess them,  we can live without those items that we owe for, but if we are broke, and the bottom does drop out, we would have the items but no money.

 We think that having the money is more important than having a clear title to either of these items. We do continue to pay our bills on time, and know that if the economy doesn't go south we are going to have to pay more in the long term.

But having the money seems to be most important to us.

What is Your Opinion?

I try to do some of each.  I have an emergency fund that I save in every month (auto-draft, so I can't forget, put it off, or spend it before it leaves my checking account several days after payday), and I also over pay all of my bills whenever possible.  I have enough in my emergency fund now for 2 months - my goal is 6 months.  I'd have more, but occasionally emergencies have come up that require cash,  and there are no fees for taking money out of my emergency fund (which is a money market), while there are for cash advances on credit cards.

My opinion is this: you should do the math ie. how much are you earning on your savings?  Are you earning more on your savings than you are paying on your bills? For example, if you are being paid 3.25% on your savings, yet are paying 9% on your bill (you don't say what this is for, credit card, vehicle etc) then it is costing you to keep the money invested.  If however, you are earning 5% on your savings and are paying less than that on your bills, then it pays you to keep the money invested.

It is scary to be debt-free yet have no cushion, and I've been there and fully understand that reality.  However, even in the short term, if you pay off your bills you can then take the money you would have used to pay the payments and rebuild your savings. It may take you a while to reach the level of savings that you currently have.

Perhaps the compromise is that you figure out how much liquid assets (ie. cash, mutual funds whatever) that you need available to be comfortable in case of emergency, and then use the difference to pay off, perhaps, one debt.  That would leave you with one debt left, and some cash in case of the emergency you dread. Outside of a cushion of emergency fund, you need to think what else do you have that you can rely on in case of an economic downturn.  Do you have marketable skills, an education, flexibility with the way that you could earn income, multiple income streams etc?

Some food for thought!  What do others think?

We have thought all of these things out before having the money to pay the bills off. Our savings doesn't earn interest, as it is a home saving account.  The two bills are both for vehicles, and neither are necessities. So if the bottom would drop out of our economy, the banks are more than welcome to both of them. The interest on each of them is about 6.5%.  One will be paid off in a year, the other one, in a few more years. I just don't want to  be left holding the bag if the economy doesn't improve soon.

As far as marketable skills, I have never worked outside the home, DH is a coalminer. Neither of us are trained to do anything but what we have done  all our lives.  I also think that if the bottom does fall out of the economy, there are not going to be jobs for a lot of professionals either. I can grow a garden, wild craft a lot of herbs, greens, mushrooms, etc. I can do without and make do on a lot less than we have now.  I am very willing to do all of these things if need be. Our biggest expense in our lives would be our property taxes, and we don't want to not pay them. A lot of people lost their property during the Depression in the 1930's. We don't want to have to worry about them. That is why we aren't paying our bills off even tho we do have the money now to do so.

I know that everyone has an opinion on this subject, I am just wanting to hear them all. Just to see if others have the same ideas about our economy.

wvtrailseeker:

 Our savings doesn't earn interest, as it is a home saving account.  The two bills are both for vehicles, and neither are necessities. So if the bottom would drop out of our economy, the banks are more than welcome to both of them. The interest on each of them is about 6.5%.  One will be paid off in a year, the other one, in a few more years. I just don't want to  be left holding the bag if the economy doesn't improve soon.

I have no idea what a home saving account is, I'm Canadian and have not heard of such a thing.  However, I understand that your savings don't earn any interest.  You state that "the banks are welcome to your cars".  However, I don't think it's this simple...the bank will repossess your vehicle if it deems it to their advantage, meaning that they must get fair market value, enough to pay off their fees and costs at a substantial amount over and above what you owe. Fair market value may be in the toilet if the economy is failing to that degree. This may not be the route that your bank chooses to take.  They may simply choose to sue you and garnish the money in your accounts.

 If you lost your vehicle this way, you would not only lose just the asset, you would also lose the amount that you have paid over the years, including interest already paid, as well as interest that you could have earned on that money. 

Further, there is the damage to your credit rating that will last for at least 7 years, and will impact your borrowing capacity/rate over the time that it stays on your credit report.

Also, you need to consider the morality of not paying off your debt (potentially that is, in the event of an economic downturn) while you have the money to do so. I'm not judging you, just advising you that these are other things to take into consideration.

wvtrailseeker:

The two bills are both for vehicles, and neither are necessities. So if the bottom would drop out of our economy, the banks are more than welcome to both of them. The interest on each of them is about 6.5%. 

As far as I'm aware, when a car is repossessed, it goes to auction and the original owner (you) are still liable for the difference between what it brings at auction and the balance of the loan.

You'd be better off to pay off the cars right now, or, if they're truly not necessities, get rid of them and their payments: sell them for enough to cover the loans, or sell them to someone who can take over the payments (just make sure you're not responsible if they can't).  

Yes Pat, I do realize this. I am in the process of trying to sell them now, but with all the "good deals" in the auto sales industry, no one can afford to buy used, it is the new ones that get all the low interest loans. So we are still trying to sell them to get out from under those payments.

So far no takers. LOL That won't stop me from still advertising it every week in our free ad paper. I so want to get rid of these bills. It just takes time. and somedays I am just impatient.

Thanks for all the imput in this thread. I do appreciate the ideas, and advice.

 Another thought to ponder..

People not being able to pay their loans or choosing not to in favor of affording other things farther damages the economy and creates more problems. I think the mortgage disaster is a taste of this.

Brandy:

People not being able to pay their loans or choosing not to in favor of affording other things farther damages the economy and creates more problems. I think the mortgage disaster is a taste of this.

Agreed. Defaulting on loans is where the problem begins (or began) in the first place.  

I agree with Pat and Brandy. Also from a moral standpoint I personally would not want the cars to be repossessed just because the economy tanked. What if everyone thought that way? JMHO.

You need cash for emergency, however I will say that you cannot be prepared for everything. Just keep some cash available but pay down the debt load as fast as possible.

We now have $1500 set aside again for emergency issues, and have about $3000 yet in the bank that will be paying off a credit card this month. It's tempting to put that $1500 against another debt, but we have to have something earmarked for trouble. It's also tempting to keep that $3000 in savings or cash in case the economy crashes. But I feel much worse keeping that debt around any longer.