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The first thing you think of when you lost your job is money . You do not feel financially secure. However you will only feel confident when you have cash reserve of at least six months your living expenses amounting to US 18,000 .You keep your fingers crossed and hope that you will get a job within the next six months.

Your problem compounds when you still have a total debts outstanding of RM 44,000 . They comprise your credit card debt US 8,000, car loan outstanding US 12,000 and a mortgage loan outstanding US 24,000 . You have to take care of the monthly repayment for the three loans totaling US 2500 a month while you look for a job opportunity. Another thought scares you , what if the job is still not forthcoming at the end of six months ?

You thank God that you had save up US 38,000 in your bank account . Your savings can cover not only six months but slightly over a year of your living expenses. After setting aside US 18,000 for the six months living expenses , you still have a balance of US 20,000 . Now you are thinking whether it is wise to use the balance to settle part of your debts totaling US 44,000.

As the credit card debt is the most costly to you , you must settle the US 8,000 immediately . That will reduce another US 8,000 of your savings and leave you with a reduced balance of only US 12,000 . With the settle of the credit card debt , you monthly repayment of your car loan and your mortgage loan is reduced to US 2,000 a month.

While thinking whether to settling any further debts , you can use the balance of US 12,000 to take care of your monthly repayment . Provided you do not need to incur any emergency expenses like medical , car repair , home repair, the balance of US 12,000 will take care of your monthly repayment for car and home loan for six months ( US 2000 X 6 ) .

However, since the balance of US 12,000 is in your hand , you can opt to settle half your car loan outstanding of US 6,000 leaving your with a reduced balance of US 6,000. This way you will save some interest on car loan as well. With the car loan reduced to RM 6,000 and your mortgage still standing at US 24,000 , the total monthly repayment is further reduced to US 1000 a month. Therefore the balance of US 6,000 is sufficient to cover six monthly loan repayment . ( US 1,000 X 6 ).

At the end of six months , you money will have been used up for six months living expenses and the balance of six months monthly repayment on you car loan and home loan . But take heart , you have settled all your credit card debt half the car loan outstanding. In a worse case scenario that your job is still not forthcoming at the end of six months , you can refinance your car and start to buy on credit again.

You have set your priority right . You have used your savings to settle your debts outstanding by settling the high interest credit debt first. Next you settled half your car loan . Doing that have saved you some interest costs and have reduced your burden of monthly repayment. Notwithstanding , you have the ability to obtain finance at the end of six months to buy you further time to get back to employment again.

Learn more about this author, Chin M C.
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