Paying Down Credit With Savings

Im going to talk about a decision I recently made dealing with paying down my credit card with money from my savings account.  It’s a tough decision for multiple reasons.  Here are a few:

• You should pay down your credit card with money from savings if your interest rate on the credit card is higher.  With most banks paying approximately 1% on interest in money, you’d definitely get a better deal paying down credit cards, which can charge up to 30% interest.  If you paid down your credit card, you’d get an immediate return of the credit card interest minus the savings interest.  That’s much better than you could do in the stock market
• If you burn through most of your savings paying off the credit card, you could be forced to turn to your credit cards in the event of an emergency.  This would surely put you between a rock and a hard place if it did come up.

Those are basically your two arguments when it comes to paying off credit card debt.  I was personally in the situation where I would need to decrease my savings by about half to pay off the credit card, and found that I could not pass up the deal.  I know that my savings now is a bit smaller, but I’ll no longer be paying interest on former purchases.  Paying down my credit card freed up more money to increase my monthly payments to my other cards, thus allowing me to pay down my debt faster.

This will put me on the road to financial sustainability.  By getting myself out of the clutches of past spending, I can concentrate on making my finances sustainable for the future.  Being able to pay for things as you go, as opposed as when you want to, is a hallmark of financial sustainability.  I look forward to doing this from now on.

Tagged as: credit card, debt, Finance, sustainability

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