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When I’m not working on SaveOrSpend.com, I answer an online advice column for Money Management International. Recently, a consumer posed a question about what to do with a windfall. Although the topic of her question relates to wedding gifts, I think the same rules apply for tax refunds.
Dear Advice Team:
I am recently married and my husband and I are wondering what would be the best thing to do with the money gifts we have received. We have received $4,200 and are vacillating between just saving that sum or paying off our credit cards and then begin saving. I have about a $4,000 balance on my credit card with 16 percent interest and he has $2,000 with 19 percent interest. What do you think would be our best bet? Thank you.
Michele
Michele,
You and your husband are off to a great start! Be proud that you are considering how best to utilize your money instead of running out and spending it on frivolous items.
While it is important to pay down your debts, it is also important to have an emergency savings fund. However, the interest on your savings account won’t earn you anywhere near the 16 percent and 19 percent you are paying on the credit card debt. If I were you, I’d pay down a large portion of the debt and immediately begin to make a serious effort at establishing an emergency savings account. Three months income is the minimum this account should hold.
Best wishes and congratulations,
The Advice Team
If you have advice for Michele, please feel free to share.
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