In times past, when the economy was good, the conventional advice was to make paying down credit card debt and other high interest debt as fast as possible.
That advice has changed somewhat these days.
The unemployment rate is the highest it’s been in decades, and layoffs, hiring freezes, and wage cuts are the rule of the day.
These days it makes sense to have, as a first priority, enough of a savings cushion to pay off at LEAST six months worth of bills – mortgage or rent, phone bill, car payment, insurance, groceries, utilities, a couple of hundred dollars a month for emergencies, and any other bills that might come up.
You should still strive to pay more than the minimum on your credit cards and other high interest loans, even if it’s only $10 or $20 more than the minimum. But most important is making sure that you can keep a roof over your head, the lights on, and food on the table if you are laid off or, worse, if you and your spouse are laid off.
So it makes sense these days to sit down and calculate how much you would need as a minimum to support yourself for at least six months if you lost your job…and put as much money into your savings account every month as possible. When you reach the amount that you decided on, THEN it makes sense to start aggressively paying down your credit card debt – but not before.