Savings vs Debt

[happysmileylady]

I am having the hardest time trying to figure out the best place to allocate our funds.

Currently our budget calls for a large chunk of our additional funds to go towards paying off debt. We have a small emergency fund and we add to it weekly, in addition to saving up for big purchases to pay in cash rather than on credit.

And now we are pregnant. We have tried for six years and underwent several treatments, which thankfully were covered by insurance. We owe no medical debt for the treatments, for which I am thankful.

However, the specters of maternity leave and lack of job afterwards loom large. I work for a company that is too small to be covered under FMLA. And they aren't very pregnancy friendly. I do not believe I will have a job when I am finished for materntiy leave and I am not willing to cut my maternity leave short for this company. We cannot afford to live on one income and I am looking for something to bring in the money for when I am ready to start working again.

But in the mean time, we will need money to cover maternity leave and of course for additional baby expenses. So my question is, do we stop paying down the debt and begin saving for this or continue to pay down debt, bringing us closer to not needing that money to go out.

[Lynnae]

If I were you, I'd start saving, unless you can pay off the debt by the time you have the baby, making it easier to survive on one income.

If you pay down the debt now and have no savings when you drop to one income, you're just going to have to charge up your credit cards again to survive. If you have a sizable emergency fund, you can at least keep your debt where it is. Then if you find another job sooner than you anticipated, you can take a chunk of your savings and put it toward debt.

Congratulations on your pregnancy! It took me a while to get pregnant too, and it's a wonderful feeling when you're finally going to be a mommy! Try not to worry too much about the finances, and enjoy this time.

[Julie Rains]

I tend to agree with Lynnae -- congratulations! and it's good to have the cash on hand to buy what you need or service the debt (even in small amounts) or both. Though if your interest rate is high (credit card debt that might be 15% or more), it might be best to pay off the debt. You might also do some projections for the next several months to help you figure out what to do and make you feel comfortable with your decision.

[happysmileylady]

Originally Posted by Lynnae

If I were you, I'd start saving, unless you can pay off the debt by the time you have the baby, making it easier to survive on one income.

If you pay down the debt now and have no savings when you drop to one income, you're just going to have to charge up your credit cards again to survive. If you have a sizable emergency fund, you can at least keep your debt where it is. Then if you find another job sooner than you anticipated, you can take a chunk of your savings and put it toward debt.

Congratulations on your pregnancy! It took me a while to get pregnant too, and it's a wonderful feeling when you're finally going to be a mommy! Try not to worry too much about the finances, and enjoy this time.

Originally Posted by Julie Rains

I tend to agree with Lynnae -- congratulations! and it's good to have the cash on hand to buy what you need or service the debt (even in small amounts) or both. Though if your interest rate is high (credit card debt that might be 15% or more), it might be best to pay off the debt. You might also do some projections for the next several months to help you figure out what to do and make you feel comfortable with your decision.

Thank you ladies. We have two main debts and a little debt. The first debt is a mortgage on a rental property. We only owe $5k on it and we can have that one paid off within the next month or so. It's become a money pit and the guy that's renting it isn't reliable so we dont' want to end up getting stuck with it when we are on one income. So, that one we are definetly paying off first. It's the money that we are using to pay that that I have been tyring to decide what to do with. Saving it totally makes sense. And really, if I think about it and we trim the budget just a smidge, we can save enough to cover my income for somewhere between 2 and 3 months of leave.

Our second debt is a home equity loan. The interest rate isn't fabulous but it isn't terrible either and there's no way that we can get it paid off by the time the baby comes.

The third small debt is a dental bill. It's not accumulating interest and it's not on our credit report. The dentist has us on an automated payment plan and they are happy with how it's working and we are happy with how it's working so even though it's the smallest debt, it's really not a priority...though honestly, we could have that paid off by the time the baby gets here too and then it's just the HELOC....and this is why I keep going back and forth on trying to figure out what to do

[72Tiger]

Pile up cash until the baby arrives. When everything is fine, and you are back to work, you can put that chunk of cash towards your debt. Congrats!

[kav122]

Originally Posted by 72Tiger

Pile up cash until the baby arrives. When everything is fine, and you are back to work, you can put that chunk of cash towards your debt. Congrats!

ditto. And congratulations! From my experience (and we are working REALLY hard to be debt free) it was MUCH more comforting to have a chunk of money rather than to be paying extra on the debt while I was pregnant. Remember that stress is harmful, too! So anything that can help you relax and enjoy this time is nice...I wouldn't worry about that dentist bill, and just keep paying it like you are. Never know, you might think of a great business that you could start from home! Then if you can't go back to your company, you wouldn't have to worry about the one income situation.

Good luck and congrats!

[Finally_Frugal]

Continue paying the minimums to the debt, and increase your emergency savings fund. Then when the baby comes, you'll be covered without having to increase your CC debt.

I'm facing a possible labor strike in the next three months, so I'm decreasing debt payments and sending that money to my EF instead. Later, if the strike never materializes, then I've padded my savings account. If the strike does occur, I'm covered!

Congratulations on the pregnancy! That's wonderful news!

[happysmileylady]

I got my bonus from work today and it was $1k more than I expected so that $5k that I mentioned before...it's going to be gone at the end of the week! Wooo Whoo!!! So, now everything that's been going to that is going to savings for materntiy leave

[khorrell]

Congratulations, and how fantastic that your bonus was larger than expected! I guess by now you've figured out that many of us would choose to increase your emergency fund.

If anyone disagrees, please chime in and explain why. We all love to hear different points of view!

[StanFatherof3]

I have to agree with everybody else. If you save your money and then don't need the savings, you can always use it to pay off debt later.

Congratulations, by the way, on the new baby.