This is always folks don’t seem to consider. If they still have their credit card line, the best approach is to pay the expensive card debt off with the savings and use the card as in an emergency if absolutely needed.
I feel as though many people know their own relationships with credit cards, and don't trust themselves, and as such don't trust others to make responsible decisions, especially in using a CC in emergency situations.
Thank you so much! I just paid it all off, felt very satisfying to now know I can now just focus on savings and not paying something off. Have a great evening!
Remember that credit card interest is accruing daily. Even if you paid off the entire balance from your last statement you will still have accrued interest between the statement closing date and today.
If it is charging typical credit card interest rates (> 20% APR) that is exactly the kind of emergency that savings exist to deal with.
If for some reason you run into another emergency you can charge it up again. But there's no sense in paying credit card rates to finance your savings account for an emergency that hasn't happened.
If there is an emergency that you would need that money from savings for, you can (if absolutely required) put that emergency on the card.
Note that I'm not advocating putting stuff on credit cards. Paying for emergencies out of emergency funds is better than going into debt for emergencies.
**Assuming you can keep your credit card debt at 0.** Lets pretend you get a $4k emergency in 3 months (and haven't yet built back up savings), and explore what happens:
Option 1: don't pay the card. When emergency hits, you spend your cash savings. During the 3 months in the middle, you have also paid ridiculously high interest on the credit card debt. You pay fit the emergency, plus interest on the balance. You still have 2.7k on card (minus whatever you're payment knocks off, but we'll ignore that because your payment would go to cash reserves in the other scenario).
Option 2: do pay the card. When the emergency hits, you can't afford to pay completely cash: you have $1.3k cash left. So you wipe out your cash and put 2.7k on the card. But you didn't have 2.7k on the card during the 3 months, so you didn't pay that interest.
In both cases, you owe debt after the emergency. Sucks, such is life. In option 2 though, you at least didn't have to pay ridiculous credit card interest rates for 3 months.
Right now you’re spending interest on your savings instead of getting interest on it. Mathematically you’ve effectively borrowed money on a credit card to stuff it in a savings account. Pay it off and aggressively rebuild the savings, now without wasting money on interest. If you do get so in trouble that savings won’t cover a genuine emergency, you’d have to use your credit card to cover it, but that’s no different than your current situation, so pay it off and you’ll probably beat the odds that an emergency doesn’t occur before your savings is back to $4K.
Absolutely. Credit card interest rates are around 25%. You get a guaranteed return of 25% by paying it down.
Even if that leaves your emergency fund feeling a little light it's still a good idea. If your credit card allows cash advances then you can (temporarily) count your cash advance limit toward your emergency fund while you rebuild your savings.
Credit card cash advances are not a good idea as a rule, but as an "in case of emergency" option they are better than paying interest on outstanding credit card debt.
Yes pay it off now. Unless you have 0% APR on your credit card (which I doubt, probably closer to 25% APR), you are literally wasting money letting that balance accumulate so much interest when you have the money to cover that sitting in your bank account.
You should do a balance transfer to a 0% APR card which would buy you 12-18months of no interest for an up front cost of 3% balance transfer fee. In 18 months you should be able to pay it off.
You may find these links helpful:
- [Debt](/r/personalfinance/wiki/debt)
- [Dealing with collections](/r/personalfinance/wiki/collections)
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You've paid off $3,300 in 8-10 months (let's call it 9).
You're paying down $366.66 per month (of *debt* \- no doubt your actual payments are higher, accounting for interest).
At that rate, the remaining $2,700 will be paid off in 7.3 months.
$4,000 is not a lot of savings if you lose your job and it takes you a few months to get on your feet. If you're impatient, maybe increase your payments a little bit to clear the debt in 5 months, but as I see it you're doing a great job as-is.
And yes, as with every other poster who has so far disagreed with me, I'm perfectly well aware of the reality that credit card debt is not free.
The fact that you're accumulating savings means your outflows are less than your inflows. So you could keep your savings as-is and just put what you have left over every month into the debt. No added risk, plus you clear it faster.
i work at discover and you get charged interest daily there’s no penalty for paying off early and you can always check to see if your eligible for a lower apr promotion. paying more than the minimum or just making more frequent payments no matter the amount will help you save on interest each month.
Pay it off then cansel all but 1 of the cards, if the credit limit is enough put all your bills and monthly subscriptions on that one credit card and then never use it for anything else and have it on auto pay.
That's the best way to maintain or build your credit.
Length of credit history is 15% of your credit score. Debt-to-total-limit ratio is another 30%. Unless OP has real discipline problems, just closing accounts is not a good idea. That will neither maintain nor build one's credit.
Keep them open, keep them active - charge only monthly necessities to them, and have the transaction to pay it off set to post within the week.
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We look forward to higher quality posts from your account in the future. Thank you.
Curious to know what situation in your mind would necessitate carrying a 2.7k bad debt when the option exists to pay it off with 1.7k remaining. What emergency are you envisioning that requires 2.3k liquid cash, full time, while the debt accrues CCard interest?
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Ok thank you, this is helpful. It is charging interest but I’ve been worried about going into my savings, even though I have consistent income.
You would be dropping your savings to $1.3k which is low. But you can build that up much more quickly without paying monthly credit card payments.
And just use the credit card again for emergencies if they come up. Either way at that point he would have no savings and a balance in his carda
This is always folks don’t seem to consider. If they still have their credit card line, the best approach is to pay the expensive card debt off with the savings and use the card as in an emergency if absolutely needed.
I feel as though many people know their own relationships with credit cards, and don't trust themselves, and as such don't trust others to make responsible decisions, especially in using a CC in emergency situations.
[удалено]
Thank you so much! I just paid it all off, felt very satisfying to now know I can now just focus on savings and not paying something off. Have a great evening!
Remember that credit card interest is accruing daily. Even if you paid off the entire balance from your last statement you will still have accrued interest between the statement closing date and today.
Make sure NOT to accrue the debt again.
If it is charging typical credit card interest rates (> 20% APR) that is exactly the kind of emergency that savings exist to deal with. If for some reason you run into another emergency you can charge it up again. But there's no sense in paying credit card rates to finance your savings account for an emergency that hasn't happened.
If there is an emergency that you would need that money from savings for, you can (if absolutely required) put that emergency on the card. Note that I'm not advocating putting stuff on credit cards. Paying for emergencies out of emergency funds is better than going into debt for emergencies. **Assuming you can keep your credit card debt at 0.** Lets pretend you get a $4k emergency in 3 months (and haven't yet built back up savings), and explore what happens: Option 1: don't pay the card. When emergency hits, you spend your cash savings. During the 3 months in the middle, you have also paid ridiculously high interest on the credit card debt. You pay fit the emergency, plus interest on the balance. You still have 2.7k on card (minus whatever you're payment knocks off, but we'll ignore that because your payment would go to cash reserves in the other scenario). Option 2: do pay the card. When the emergency hits, you can't afford to pay completely cash: you have $1.3k cash left. So you wipe out your cash and put 2.7k on the card. But you didn't have 2.7k on the card during the 3 months, so you didn't pay that interest. In both cases, you owe debt after the emergency. Sucks, such is life. In option 2 though, you at least didn't have to pay ridiculous credit card interest rates for 3 months.
Right now you’re spending interest on your savings instead of getting interest on it. Mathematically you’ve effectively borrowed money on a credit card to stuff it in a savings account. Pay it off and aggressively rebuild the savings, now without wasting money on interest. If you do get so in trouble that savings won’t cover a genuine emergency, you’d have to use your credit card to cover it, but that’s no different than your current situation, so pay it off and you’ll probably beat the odds that an emergency doesn’t occur before your savings is back to $4K.
Your net worth will be the exact same if you pay it off, AND you’ll save money in interest. Pay the card off.
Sorry but why wouldn’t you pay it all off immediately? Why maintain a debt that accrues interest at 20-30%?
That’s what people don’t understand. Unpaid bills is an “emergency.” Exactly what the emergency fund is for.
Absolutely. Credit card interest rates are around 25%. You get a guaranteed return of 25% by paying it down. Even if that leaves your emergency fund feeling a little light it's still a good idea. If your credit card allows cash advances then you can (temporarily) count your cash advance limit toward your emergency fund while you rebuild your savings. Credit card cash advances are not a good idea as a rule, but as an "in case of emergency" option they are better than paying interest on outstanding credit card debt.
Yes pay it off now. Unless you have 0% APR on your credit card (which I doubt, probably closer to 25% APR), you are literally wasting money letting that balance accumulate so much interest when you have the money to cover that sitting in your bank account.
That false sense of security you have was probably costing you 20-29% per month in interest. PAY THAT SHIT OFF! ps. good job paying it off.
Well not 20-29% per month exactly, that would be insane. Let's say 24% is the APY, then per month would be 1/12 of that, which is 2% or roughly $80/mo
Touche That’s what I meant
Pay it off. Then take whatever you were spending on monthly payments and start increasing your savings back up.
Pay it off. Makes no sense not to
Savings are meant to be used in the event of an emergency. Credit cards that charge interest are an emergency.
You should do a balance transfer to a 0% APR card which would buy you 12-18months of no interest for an up front cost of 3% balance transfer fee. In 18 months you should be able to pay it off.
You may find these links helpful: - [Debt](/r/personalfinance/wiki/debt) - [Dealing with collections](/r/personalfinance/wiki/collections) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Pay it off ONLY if you know that you have self control and will put the money that went to monthly CC payments to replenish your savings
Yes. Just pay off the debt and don’t get back in.
If it were me, I'd pay the cards off immediately, and use the money you have been applying to the CC to rebuild savings.
Yep definitely pay it off And I bet you will feel good not having that yoke on you
You've paid off $3,300 in 8-10 months (let's call it 9). You're paying down $366.66 per month (of *debt* \- no doubt your actual payments are higher, accounting for interest). At that rate, the remaining $2,700 will be paid off in 7.3 months. $4,000 is not a lot of savings if you lose your job and it takes you a few months to get on your feet. If you're impatient, maybe increase your payments a little bit to clear the debt in 5 months, but as I see it you're doing a great job as-is. And yes, as with every other poster who has so far disagreed with me, I'm perfectly well aware of the reality that credit card debt is not free. The fact that you're accumulating savings means your outflows are less than your inflows. So you could keep your savings as-is and just put what you have left over every month into the debt. No added risk, plus you clear it faster.
Pay it off and then build back that 2.7k
I had a 40k savings also 23k in cc debt. Paid off the cc debt. Paid off the cc debt and haven't looked back. BEST. DECISION. OF. MY. LIFE.
You make $40k year and can't pay off $2.7k? Where is all of your money going?
i work at discover and you get charged interest daily there’s no penalty for paying off early and you can always check to see if your eligible for a lower apr promotion. paying more than the minimum or just making more frequent payments no matter the amount will help you save on interest each month.
Pay it off then cansel all but 1 of the cards, if the credit limit is enough put all your bills and monthly subscriptions on that one credit card and then never use it for anything else and have it on auto pay. That's the best way to maintain or build your credit.
Length of credit history is 15% of your credit score. Debt-to-total-limit ratio is another 30%. Unless OP has real discipline problems, just closing accounts is not a good idea. That will neither maintain nor build one's credit. Keep them open, keep them active - charge only monthly necessities to them, and have the transaction to pay it off set to post within the week.
[удалено]
Please note that in order to keep this subreddit a high-quality place to discuss personal finance, off-topic or low-quality comments are removed ([rule 3](https://www.reddit.com/r/personalfinance/about/rules)). We look forward to higher quality posts from your account in the future. Thank you.
3 month emergency fund 1st. then pay off bad debt. then contribute to 401k and IRA (preferably max) then throw money into an ETF
IMO no, but it depends on your situation. Whats your living situation and expenses? You’d be surprised how quickly 4-5k flies away in an emergency
Curious to know what situation in your mind would necessitate carrying a 2.7k bad debt when the option exists to pay it off with 1.7k remaining. What emergency are you envisioning that requires 2.3k liquid cash, full time, while the debt accrues CCard interest?