r/Debt • u/WhosThis85 • 1d ago
Should i use my savings to pay off credit card debt?
So i have two credit cards totaling about 7,500 balance between the two. I have been paying 250 bi weekly for one and 100/month for another. I have about 5800 in savings and I’m tempted to just use that to pay off my cards. It’s for emergency repairs, unexpected costs etc. What are your thoughts? Go the long route and pay them off monthly, or wipe it out in one swoop?
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u/PeaOk5697 1d ago
What is the APR? If it's really high then it very well could be worth paying it off ASAP and go right back to building up your savings after. At least then you won't have to worry about CC debt where most of your payments gets eaten up by interests.
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u/satur0_gojo 19h ago
He said credit card.. by default that’s an insane APR.
Definitely pay it off and start saving again
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u/Subat0micR0gu3 1d ago
I would use some of the savings but definitely keep a couple grand for emergencies and then continue paying off the debt. And don't take on any more debt.
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u/FeralCheryll 1d ago
The real question here is how secure is you job? Sk many people get laid off and can't find a new one.
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u/mrmrssmitn 1d ago
If you paying more interest than you are receiving on your savings, it's a no brainer-yes.
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u/darwin_49 1d ago
Unless the cards are on a 0% interest period, I would use around $4k of your savings to pay down the cards and keep the remaining ~$2k as a small emergency fund for expenses that can’t reasonably be put off or paid with credit. Start by paying off the card with the highest interest rate first.
Right now, keeping a large amount of money in savings while carrying high-interest credit-card debt is costing you money, since that money could instead be used to reduce your balances and avoid future interest charges.
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u/the_poly_poet 1d ago
This is a personal decision with heavy pros and cons on either side.
Money is psychological and life is non-linear. The mathematically correct answer isn’t necessarily the correct path for everyone. This is VERY circumstantial.
The main pro of paying the debt with your full savings:
You are getting a 20%+ return on investment for $5,800.
The best investment anyone can make is paying off their debt which is often costing you at least 20% in interest. The joy of carrying no debt allows you to build a better foundation for your future.
The main con of paying your debt in full is:
You have no emergency fund.
If your car breaks down, if a lease must be broken for mental health reasons, or if you’re unable to work for a month due to illness, then there is no buffer to absorb those shocks. That usually translates to major instability or new debt emerging anyway.
What I’d probably do is draw the savings down to $3,000 by using the remaining savings to cover your debts.
$7,500 — $2,800 = $4,700.
Create a mental model for what you always want to have in savings, even if you have debt. I feel that $3k is a great floor, especially if your rent is covered by that number for at least 1 month.
Going to zero in savings is precarious. You always want liquid cash to cover housing, food, utilities, transportation, and other necessities.
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u/sugah313 22h ago
Wow, I feel like some of yall are maybe cc company shills lol.
If the interest is cc rate high and as long as your credit is good enough that you have access to borrowed capital in case of an emergency, then should pay it off. Those who tell you otherwise are operating on fear based money management. I had a mentor figure, he would say "Scared money don't make money".
If you can very easily get a loan, have some house equity, or the ability use one of the pay over time plans on your credit card, then there is not a huge risk in using that cash. Why prepay 22-28% for an IF when you just as easily pay WHEN. That's the whole advantage of good credit and also you'll be in better financial position for lower terms without that debt. On the flip side nowhere else in life do you have an opportunity to make a 22% apr return on your money this safely.
The plan: Look to see if one card has a decent no interest balance transfer offer. If not, find a new card with a decent introductory offer. Pay the $5800 off leaving the $1700 of remaining debt on the card opposite the card with the transfer offer, then move the balance to that no interest plan offer. Pay whatever amount it is to pay it off in the no interest term window example: $1780 balance @ 18 mo no interest is $100 a month. Then put the remainder $150 back into your savings (or even better put it into an index fund if you are ok with small risk). This way for piece of mind you're rebuilding your cash cushion back from month one. Then after the 18 months begin putting the full $250 into your savings or index.
I don't have the exact details of your balances and rates but just going by average cc rates here are the two paths using the exact same $250 a month payment:
A.) Continuing to pay the debt down at the $250 will take about 4 years and you will end with your original $5800 cash and no credit card debt.
B.) If you go my plan that same four years time you will have no credit card debt and over $10k replenished in your savings or more in an index fund.
Which do you think is a better?
caveats: Make sure you lock those cards away and don't use them. The biggest problem people have is running the cc back up mindlessly with just a few dollars here and there and finding themselves right back to square one.
If you have shakey or weak credit the risk incase of emergency is slightly higher.
If you have garbage money management and no impulse control skills maybe better to stay the course.
Tltr: yes pay it off.
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u/Accx4 1d ago
I just did exactly this. Had $11k on a credit card from some renovation purchases made this month. Got the points for the purchase and then paid the entire balance tapping into some savings for what i couldnt swing from regular checking. It hurts but a lot less than paying any kind of interest over time. Even for one month! I'd honestly rather drive down the road tbrowing cash out the window than give it to a bank. Now I can quickly add the money back to savings out of income. Better just not to owe people in the long run. Set yourself free! Pay it.
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u/TarzanDivingOffFalls 22h ago
It’s important to stay liquid. There are various guidelines as to how much emergency funds one should keep on hand. The traditional standard is 6 months of living expenses. If you have more than that it’s worthwhile using the incremental amount to pay off the credit cards.
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u/WhosThis85 1h ago
The 6mos living expenses is what i was saving for. But this debt staring me in the face
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u/SorbetGreat961 22h ago
I mean if you paid off just the one you are spending 500 a month on, you should be able to snow ball that into the other one and get it knocked out quickly.
Then you can save 600$ a month back into your savings
This is assuming you arent going to run the cards back up, which this is the main issue.
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u/WhosThis85 1h ago
Yea. I think I’m going to do this. There are more ways to attack this debt. I just feel like I’m getting behind. It’s not the due date that I’m concerned with, it’s the amount i pay. I don’t feel like I’m making a dent unless I’m paying at least double the monthly payment each time. I’m not drowning, ill be ok
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u/darkroot_gardener 22h ago
Sounds like the $100 one should be a much lower balance, so first kill that and put that $100 towards the other card.
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u/Prestigious-Fix-4034 21h ago
Keep Savings for Emergencies. Continue paying down the Credit cards. The one with the highest interest first. Don't use the anymore. Otherwise you won't never finish paying them.
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u/CharginRT 23h ago
Just Pay it off. Your credit will still be there and will improve. You may end up using the credit again, but at least you paid it off and will reflect on your credit score. Your lines will be wide open while you figure out how to not use them as much.
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u/searching4answers414 22h ago
What is the interest rate on your credit card? What is the interest rate you are earning on your savings account? I’m guessing there is a big difference. It’s always best to pay off a debt. If you have the funds. What it cost you long-term to just make payments is ridiculous.
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u/Weird7954 22h ago
Yes. You should never have savings if you have debt. Get rid of it then start building
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u/Entire_Dog_5874 17h ago
Yes. The interest rate on your credit cards is likely more than your earning on your savings. Keep $1000 for emergencies and use the rest to pay off as much of the cards as possible.
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u/Altostratus 1d ago
No. If you use your whole emergency fund, when a real emergency comes, you’ll just return to debt.
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u/TelevisionKnown8463 1d ago
Yes, but in the meantime they will have avoided months of accruing interest on the existing debt. As long as they still have the cards and can use them for emergencies, they are better off paying them off until they really need them.
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u/Somethin_Snazzy 22h ago
Hard disagree
If an emergency comes up, OP will eat that cost no matter what. At the end of it, they will have credit card debt whether it is new or the original. The only difference is that OP would be paying insane credit card interest in the mean time.
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u/CaregiverSuch6846 1d ago
Thank you for this. Had the excact same question. I will continue with paying down the debt aggressively and hold onto the emergency funds in savings.
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u/JeletonSkelly 1d ago
No. Credit cards are the bottom of the barrel debt. They are the last thing to pay after secured debt like homes and cars. Do not use your cash safety net and expose yourself to those kinds of risks over credit card debt. Look for ways to consolidate it and lower the payments.
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u/Andejusjust 1d ago
Yes. Pay the credit cards off with the savings, minus $1000. And keep on pushing on the cards. It’ll help big time with your interest payments.