Should Freelance Payments Go Toward Savings or Debt Reduction?

I got a highly anticipated email today. The direct deposit from some freelance assignments in is progress.

“Amen!” I exclaimed at my cubicle. “Amen.”

I had to ask four times in the past week about these payments, so I’m glad it finally came through. Unfortunately, this money is going straight to debt repayment.

I’m going to pay off one of my credit cards with the lowest balance to attain my goal of paying it off by September. SCORE! Then the minimum payment I was making toward that card will go to the next to get the snowball rolling. (Yes, I will keep that promise to myself this time.)

But I don’t know where to put the remainder of the funds:

  • Do I replenish the $300 I took out from my emergency fund? I want to build that to $1,000 by the end of 2015.
  • Do I put that money onto the card I used during my summer shopping spree?
  • Do I put that money on the card with a hefty car repair bill on it in order to pay off that promotional purchase before the six-month period without interest expires?
  • Do I spend $80 on those music festival tickets I’ve been eyeing?
  • Do I go the mechanic to finally check out those car vibrations?

I’d actually save money in the long-term by reducing the balance on the shopping spree card. The interest rate on that is 19 percent. But my goodness, I really want to replenish my emergency fund because I feel guilty for dipping into it. Putting money back into that account would really boost my happiness in the short-term. The savings account’s interest rate is 0.25 percent. If I put that money in the emergency fund, then it could reduce the chances of me using a credit card. Hmmm…. Decisions, decisions.

This money isn’t an unexpected windfall per sé, but the many personal finance writers have different ideas for how to use this nice chunk of change. Put in savings. Splurge with 5% of it. Pay off debt with it.

Perhaps, in the future I should go ahead and allocate where my freelance money will go before I get it. That way, the decision’s already made.

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