Is it better to save or use it to pay down CC debt?

[Bellefior]

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[SingleWhiteFemale]

Depends on the interest rate :) Usually savings accounts pay diddly squat (I think the most I've really heard of is in the neighborhood of 3% with ING) in interest, but credit cards charge anywhere from 9-29% interest on the norm :eek: I'd go with paying down the credit cards, especially if you're paying interest on the balances :)

[trefoil]

Depends on the interest rate :) Usually savings accounts pay diddly squat (I think the most I've really heard of is in the neighborhood of 3% with ING) in interest, but credit cards charge anywhere from 9-29% interest on the norm :eek: I'd go with paying down the credit cards, especially if you're paying interest on the balances :)

Yep. The interest rates on credit cards are almost always higher that the interest rates on savings accounts. The only time I would suggest saving over paying down the credit cards is if you don't have emergency savings put away.

[Delaney21]

You could pay all of the extra money on the credit cards, and once those are paid off you could start your savings. I wouldn't do it, but some of my friends do. One of my friends has the belief that credit cards are for emergencies, so emergency funds aren't necessary. Then she wonders why she can never get her CC debt paid down. (and she doesn't realize that a good sale does not equal an emergency!)

DH and I had a little CC debt and a little savings when we first got married. We put the majority of our leftover money towards the CC, but still had money going into our savings each month. Our savings kept growing, even if it was slowly, but it gave us the peace of mind that if something happened, we would have a way to cover it instead of resorting back to the CCs.

[houseblend]

I would pay down the credit cards even if you don't have emergency savings. The interest rates will kill you and keep setting you further and further back. It's not fun to not have emergency savings, but at least with the credit cards paid down, if worse comes to worse before you are able to start working on savings, you can charge on those. This is definitely not a long-term philosophy, but at least until you get better situated. Oh - and in the meanwhile, don't add any more charges to your credit cards - it will keep it much easier to pay them down.

[laura]

ITA with houseblend. And I could be incorrect, but from the OP it seems like you may already have *some* savings? If this is the case, I strongly recommend putting everything you can toward the CCs. My only exception to this would be if you don't have any savings and you have so much debt that it will take you years and years to pay it off. Then I would suggest doing some kind of split, with the majority (75%+, depending on your income level) going toward paying down debt.

[Asha]

i would pay off your credit cards. most likely they have a high rate. you would be making much more on your money by paying them off.

[flygirl]

I agree with everyone else that available cash is better used to pay down higher-interest rate cards. HOWEVER, if you are talking about retirement or long-term savings, definitely start an account, even if it's only $100. The compound interest on that account over time will make up for a few months of cc interest.

[amorey]

Right now we are putting just about every dollar we can to our credit cards. I also cut the credit cards up to stop myself from charging on them. (I was like Delaney's friend who thought at good sale or a dinner out after a stressful day was an emergency.)

We do put $50 a month in to an emergency fund, hoping than any emergencies we may have will be small. ;)

Once we have our credit cards paid off, we'll start putting the amount we were paying into an emergency fund. We should get that built up in no time at that point!

[miel]

I would save a teeny bit for emergencies, though. Pay down the cards but it is good to have some cushion of savings in case something comes up.

That's how I do it.

Now that I am married and have a job, I never charge anything. But when I was a student and poor I really had to charge to survive--to get a suit for interviews or fix my rotten teeth, etc.

This is why I say to put a little money away. It is better to spend the money then to charge and pay it off...once it's on the card, it is hard to realize that you just don't have that money anymore.

[miel]

Good luck Bellefior...

We are trying to pay down our debt so that if my career doesn't work out and I have to go back to school (in my early forties arg!) then we will be able to survive on the Starbucks salary or whatever crazy lack of income we have.

My husband is the frugal one. It's great when you marry someone frugal! I am so happy that we never go into debt anymore!

[stevesbabygirl]

DH's mother has always said to pay yourself first, but I still think you should pay down the credit cards.

[Hedwig]

I agree with miel...

You should have a little for emergencies, but use most of your $ to pay off the credit cards!

[paiger]

we are putting the majority (percent wise) toward paying off our credit card debt, but we are also putting money into savings for emergencies. we recognized that if we didn't have money for emergencies (which have come up LOTS) then we'd have to keep using our credit card thus never paying it off. it will keep us in credit card debt for a couple of months longer, but the money in interest paid will still be lower than to continue to use our credit card.

we are functioning on a NO using the credit card rule! by doing so, we have a plan to be out of CC debt in 11 months!!

[Kimberland30]

Is it really realistic to have 3 months salary in an emergency fund? My DH and I bring in a nice income, and if we started seriously saving now, it will take at least 2 years of healthy deposits into our savings to have 3 months salary on hand. I know it's important, especially considering I've been laid off twice in the last year and a half. Right now we have about one month of my take-home pay saved up, and should have 3 months of my salary saved up by Christmas. My DH makes 3x more than I do...I just can't imagine show we'd save 3 months of his salary. :(

We are also paying off credit card debt. We have a total of 5 credit cards. Two of them I just paid off this month, but they had balances of less than $200 each. We'll use that money to put toward the 3 big ones we have. Since we are trying to get our available credit vs. balance ratio down, we are paying a hefty amount to the credit card with the highest balance, and less amounts on the other two. Once one card is paid off, we'll use that money for the others, and so on and so on until they are paid. Our credit cards are in our desk drawer, so we don't use them now.

We didn't change our tax information once we got married. Yeah, the Gov't is using our money, but we'd rather have one big check next year than having it in our pockets each week and spending it. Once we get out of debt, we'll change it and put the extra money in an ING account or towards our 401k (I'm not eligible until next year).

[amorey]

Is it really realistic to have 3 months salary in an emergency fund?

I think you want to have three months of expenses, versus salary. Just what you would need to make sure your bills are paid and you don't starve in case of an emergency.

[houseblend]

Amorey is right - you want 3 months worth of expenses. It's even better if you have 6. This way if you or your DH gets laid off, you won't have to go into debt (at least not right away) to pay your bills. It's not easy getting started with the emergency fund if you're not used to it, but it's definitely a great way to get into the habit of setting aside money for savings over other "splurging."

[Kimberland30]

Okay, that is MUCH better....thank you for clearing that up for me! :)

[miaclear]

I believe in putting a good amount in savings, but an even better amount into your debt. It's a GREAT GREAT feeling now that when something comes up we can pay cash for it! Ex: Water Heater breaks....rather than charging the cost of a new one we paid cash. As the savings grows I feel ok drawing out of it every once in awhile to put an additional payment into debt. Knowing that I'm not a slave to my CC is the best feeling I've ever had (well financially). :)

I also still have a plan to be debt free in another year. And by knowing that if something does come up and can pay cash for it....I'll still be on plan to be out of debt. Not just living emergency to emergency hoping one day it'll pay off.

[jude29]

DH and I had about 7K in savings and 6K in credit card debt. When I realized how much we were paying in interest we took all of our money and paid off our debt.

It was the best thing we ever did and here's why:

- 4 less bills we needed to remember to pay
-it bumped our credit score to almost perfect
-it was so much nicer to put a huge chunk into savings each month than paying a credit card bill and actually putting less in savings
-we had free space on our cards and could use them occassionally when needed

Now we use them and pay them off immediately rather than having that horrible debt!

Most financial advisors will tell you to pay off the debt. You are not earning enough interest in your savings to justify not doing it. There is such a liberating feeling when you are no longer chained to your credit cards.

[villanelle75]

Financaiily, it without a doubt makes hte most sense to pay down the debt as opposed to savings. The point of having the savings cushion is to handle an emergency. You can always use a CC for that emergency so ti just makes more sense to pay of the debt as fast as possible and then save, rather than paying ti off more slowly so you can get a savings built up. Doing it that way means that you debt will end up costing you way more in the long run becasue you are acruing interest for a longer time and on higher numbers. One way your $1000 debt will cost you $1300 and the other way it will cost you $2000 while you put only $400 in the bank. (This varies greatly depending on the amount of interest and payments, but you get the picture.)It may feel scary to not have adequate savings, but it really make smuch more sense financially to get the debt squared away and then save.

[houseblend]

Congratulations! That is awesome that you have paid one fully off. It sounds like maybe your DH needed this valuable lesson, but now that he is more responsible with money, it will be much easier down the road.