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Should You Use All Your Savings to Pay Off Debt?
Assessing Your Financial Situation
After years of hard work, you have managed to significantly reduce your credit card debt to 30K and increase your savings to an impressive 30K. Now, the question arises – should you use all your savings to pay off your remaining credit card debt?
Understanding Your Options
Before making any decisions, it’s important to consider your current financial situation. Here are a few key points to keep in mind:
– Your 30K savings is sitting in a 4.6% High-Yield Savings Account.
– Your 30K credit card debt was consolidated at 0% intro APR, but will soon increase to 12% APR.
– Your savings also serve as your emergency fund, providing you with a financial safety net.
Weighing the Pros and Cons
While it may be tempting to use all your savings to pay off your credit card debt and start fresh, there are a few factors to consider:
Pros of Using Your Savings:
– You will eliminate your credit card debt and save on interest payments.
– You will have peace of mind knowing that you are debt-free.
Cons of Using Your Savings:
– You will deplete your emergency fund, leaving you vulnerable to unexpected expenses.
– You will miss out on potential growth opportunities for your savings in the long run.
Expert Advice
Financial experts generally advise keeping at least 3-6 months’ worth of living expenses in your emergency fund. If using all your savings to pay off your debt would leave you with zero in your savings, it may not be the best decision.
Final Thoughts
In conclusion, while it’s great that you have made significant progress in reducing your credit card debt and increasing your savings, it’s essential to strike a balance between paying off debt and maintaining a financial safety net. Consider exploring other options such as budgeting, increasing your income, or negotiating with your credit card company to lower your APR. Ultimately, the decision is yours to make based on your individual financial goals and priorities.
Keep some rent money, but yeah spend your savings on the credit card debt.
Just do the math. 4.6% on your savings, minus taxes at 20%, would be 3.68% , minus 12% on the loan would be a loss of -8.32% . So you’d be better off paying the card. If you have an emergency, put the emergency expenses back on that same credit card, until you can build your savings back up.
I would just save a months worth of expenses in the HYSA and pay off as much of the 30k after that. Then beast mode the tiny bit remaining and reup your savings.
Please don’t use up all your savings. Keep enough for yourself to serve as an emergency fund (I’d do $5k minimum) and then knock out as much on the cards as you can.Â
Think about it: if something comes up, and now you have $0 saved, then you’d either have to use the credit card or heaven forbid, a payday loan.Â
Keep some for yourself first. Then pay the debt.Â
You could contact credit card company to negotiate on interest or maybe even the principal
Since youre making such good progress, I would see if you can transfer the debit to another 0 interest card for 12-18 more months for no or very low fee, and pay it off over more time to maintain an emergency fund in cash. Anything you haven’t paid off by the end of the term pay from your savings.
You probably shouldn’t go clear to zero savings, but a large debt at 12% is an emergency, honestly. Personally I’d keep two months *expenses* (not earnings) and use the rest to pay down the credit card, or six months expenses if you think your job might be unstable.
If that means your CC debt will be under $5k, personally I’d just continue to pay it down aggressively while eating the 12% interest. For more than $5k, I would try to find another card with a 0% introductory rate to transfer the balance to.
Pay off all debt – start saving again.
You should pay off the debt and rebuild the savings over time.
> i would have nothing left even for emergencies. . . .
You’d have your unused credit cards for emergencies. Also, you’d have the first approximately 50 days of the emergency interest free if you can pay it in full. When you don’t carry a balance, sometimes the credit cards give you special BT offers where you can write a check to pay for your emergency that comes with a low BT fee.
Earning 4.6% that is taxable and paying 12% interest that is not deductible to keep an emergency fund for an emergency that might never happen is a money losing strategy.
When you don’t have to make the credit card payments anymore, how much are you going to be able to save each month? I’m guessing the min payments are 2%. In 50 months, you’ll have rebuilt your emergency fund.
You are effectively using credit card debt for savings, that’s a bad plan.
Pay it off, the sooner the better
You don’t build savings with 30% interest rate debt
> i would have nothing left even for emergencies if I used up my savings.
You would have your credit cards.
Is it worth it for your peace of mind to transfer half of that $30,000 to another 0% card, use $15,000 to pay off the high interest and then work on paying the rest of the $15k over the 16-18 months of 0%?Â
I’d keep at least a couple of months of rent in the EF, and put the rest on the Credit Card. If you keep your CC payments the same, the rest should be knocked out fairly quickly as more money will go to the principle than previously.
Do you have any emergency fund or is the 30k your emergency fund
Dipping into an emergency fund can be scary but also paying 12% for a credit card is also scary. I think in this situation I would cancel myself to 0 and use my savings to pay the credit card off… unless you have some looming major issue that may come up where you need the money.