Track Your Spending to Save More Money

Escaping the Paycheck to Paycheck Life

Pay off credit card debt: White has three credit cards. She has a balance of $1,600 at 19.8% APR; $1,900 at 16%; and $978 on her third card which has a 0% introductory offer which will adjust to 22% in October 2013. She is currently paying $250 on her $1,600 balance. Brown recommends that White use the $2,000 contest winnings to eliminate the debt with the highest interest rate ($1,600). After paying off that card she can use the remaining $400 to apply that to the second debt and reduce that balance to $1,500. She can then apply the $250 on the other card and the savings from paying less rent ($300) to pay off the $1,500 balance in less than three months. By continuing to roll over funds to the next debt, White will be debt-free in a total of five months.

Build an emergency fund: White can start building her emergency fund while paying off her credit card debt. Currently she has about $288 left over each month after all bills and expenses are paid. She should aim to create an emergency fund to cover three months of expenses, or $7,200, Brown recommends. After paying off debt, White can use the $550 ($250 from credit card payments plus $300  savings from housing) to continue building her emergency cushion. Although her focus should be on saving, Brown suggests that she open a separate savings account designated to travel. It’s better that she have money put away then try to plan for a trip and be tempted to dip into savings or charge it, explains Brown.

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