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Which is better- save or pay off debt?
I've bee working diligently to pay off any credit card dept I have. At the same time, I'm trying to set some money aside in case of emergencies.
I just read an article (that confirmed what I was thinking anyway) that says that, if you have credit card debt, it doesn't make much sense to try and put money in a savings account because the money in the savings account won't earn interest at the rate that the credit card debt is accruing interest on the balance.
While this makes sense, I also think it's wise to have some money set aside for emergencies, so that I don't have to just pile up debt again. Which is better- to save the money I have been doing, or to just drain the savings account and put it towards a credit card debt?
Asked by
gpphillips9
6 months ago
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Do not drain the savings account. You should have at least six months worth of living expences saved for emergencies. If you have a fairly secure job, the remainder can go on the highest interest credit card. If you have already done this fine but write down all your monthly expenses and see where you can cut your budget down. Good Luck.
nandog 6 months ago
If you're thinking solely in terms of interest rates, it's true that credit cards eat up interest more quickly than savings accounts deliver it. But life's more complicated than that. In addition to having an emergency fund, there is a psychological and practical value to building up cash savings that will serve you in the long run. Sometimes, if we take our cash to pay off credit cards, we turn right around and run up the cards again -- and then we've got both high interest payments and no money. Saving builds good habits -- and the habit of saving means we become less tempted to use those cards.
Clairissa 5 months ago