I wanted to save some from my stimulus, but I ended up paying the last negative item on my credit report and paid off both credit cards. I was also able to stock my house of needs not wants. So which is best? Working on my current credit and raising my scores or saving? I will be able to now save the majority of my tax return. I am trying so hard.
Good for you, making progress on building your credit and reducing your consumer debt. There's no one best way to handle finances. You're doing things the right way, setting personal goals and achieving them. Keep it up!
Saving a $1,000 emergency fund should be the first goal no matter what financial plan you follow or where you are in your debt payoff.
After that, becoming debt free besides a mortgage should be the next goal. If you have debt that is under 5% interest, it is up to you if you want to pay it off first or move on to the next step. But anything over 5% should be paid off asap.
If you are at the point where you have a $1,000 emergency fund and only a mortgage for debt, hopefully you won't need a credit score. Next step is save enough in retirement to get company match if you can. If you don't get company match, then bump up your emergency fund to six months of expenses first.
After funding six months of expenses to emergency fund, it's time to save at least 15% of your income for retirement.
None of these steps require a credit score.
@Stephanie E First of all, congratulations on paying off two credit cards! Sounds like you are on the right track.
As to your question, I do not believe credit scores and savings are mutually exclusive to each-other. By practicing good saving habits [and only spending what you can pay off in one month], both can be raised at the same time [assuming you do not have any other late payments].
Nathan G has given some good, recommended steps. I would encourage you to consider how likely it is for you to be applying for a loan [such as if your transportation vehicle is on its last legs/starts costing more to repair than to buy another]. Focusing on rebuilding credit may be good if this is likely within a year or two [and no other option of transportation], because it may help lower the overall interest you would pay.
For the most part:
you must do what is right for you first
What is best is obviously subjective but I've recently come across Wealthfront.
You can start with a banking account for $1 that pays 0.35% (advertised) and when you get $500 you can add an investment account that lets you choose the level of risk.
Even with a risk tolerance of 1 out of 10 it has averaged around 6% returns. That's impressive!
Discover Bank has a much better interest rate for their savings account and then you can go to Fidelity Investments and buy Mutual Funds or stocks and earn a high % interest.
These are all great suggestions! Right now, I'm working towards paying off debts, but also saving a bit on the side even if it's only a couple of hundred dollars. By my calculations, I should be debt free in two years. No credit card payments and no car payment, just student loans. I'm not totally sold on the idea of buying a house. I don't like to be tied down. I owned a house for a couple of years, but I hated it. I ended up giving it all over to my mom, and when she sold it, she kept all the proceeds. I recently met someone who is living in an RV. He can go wherever he wants whenever he wants. I'm so jealous of that freedom. I'm definitely considering this lifestyle choice once I've got all my debt taken care of.
Great job on getting your credit score up now you need to do the same with your savings.
@David B: I use Wealthfront, and while the interest rate is currently [3/7/2021] still 0.35% APY, I have noticed after about 5 months that when my cash account was only at $5.00, I did not receive any interest.
One other thing I would like to warn you about: The initial funding is $500 for an investment account, yes. However, if you wish to add more to that, you must at least add $100 [it will refuse to transfer any amount below $100 to your investment account, even if you have the initial $500 or more.]) But, that is the only drawback I have found from using Wealthfront (so far. I have not yet decided if I want to allow my cash account checking features upgrade.)
Is it best to deposit into a savings account, roth IRA or money market?
I payoff my debt every month. How to have an excellent in credit report?
all have pros and cons
Is it best to deposit into a savings account, roth IRA or money market?
I'm not a financial advisor, but I like the Roth IRA better.
I wanted to save some from my stimulus, but I ended up paying the last negative item on my credit report and paid off both credit cards. I was also able to stock my house of needs not wants. So which is best? Working on my current credit and raising my scores or saving? I will be able to now save the majority of my tax return. I am trying so hard.
As you establish an emergency fund, your current credit and score should start to improve as you will not be carrying debt. Look into investing & long term savings after your emergency fund is fully funded.
Stephanie E, great advice from everyone above, but the most important is your mindset towards becoming debt free and building wealth. There are so many tools out there, but the most important one to use "build that $1,000 Emergency Fund" first. When you set a goal to do that and have it available to use if an emergency comes up….you are on the road to building wealth. Everything else will come. Don't be afraid to read and develop methods that will work for you. I find in my journey to becoming debt free, not using a credit card and sticking with cash when I have to buy grocery and other small items is a winner; gas and personal shopping is done on a credit card, but are a part of my monthly budget so I can pay it off by the end of the month. Whichever process you take….stay positive and don't beat yourself up when you fall along the wayside.
I think your approach makes sense.
