A finance question

b-of-a-card-artJust curious what the hive mind thinks:

I owe a moderate amount on a credit card that I used to owe five figures on.  I can pay it off immediately, but at the cost of maybe a third of my savings.  Or I could continue paying it off in chunks and it’ll be gone in between four to six months, assuming I don’t have some sort of crisis and need to use it.

Once it’s gone, I will no longer owe Bank of America a single dime of money, down from a sizeable chunk of my yearly salary seven or eight years ago.  This is more than a bit attractive, as thoughts go.

Pull the trigger?  Or stay slow and steady?

15 thoughts on “A finance question

  1. The common advice is always to pay of your debts (esp credit cards) in lieu of savings as the interest rates are so punishing against rewarding. I.e.tens of percent on debt versus -5 on savings. So avoiding paying off the card using savings is a false economy. If your dreaded emergency happens then you still have a credit card with full allowance on it to cope? Without the monthly payment (which is mostly interest payment anyway!) you can then divert it back to your savings account which is real money and you will earn from (albeit at a pitiful interest rate.)

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  2. Howto$tuffYourPig

    It depends on the interest rate. If the interest on the debt is higher than the interest on your savings ( which is likely given how low interest rates are) then I would pay it off in full. After the debt is paid off, I would set up an automatic deposit (pay yourself first) to replenish your savings so you don’t need to rely on credit in the future.

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  3. It actually depends on your savings account. If you have enough in your emergency fund then pay it off. If not keep working towards paying it off. I did this with the last car I paid off. As you get closer the excitement builds but by reducing your emergency fund could be cause for borrowing if something does happen. The emergency fund is like a personal insurance policy which we actually own.

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  4. NotAPunkRocker

    It depends on what a third of your savings account means in terms of potential car repairs, home repairs etc. If you think you have enough for an emergency or such, then go for it. If not, then leave well enough alone. Yes, you will save on interest if you do it the all-out way, but if you are only talking less than a year then it might not be enough to matter too much considering what you have paid now.

    (or take half of the amount out of savings, and then pay it down; compromise 🙂 )

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  5. If you will turn around and put the same amount into savings that you have been putting toward the debt and build it back up I would say clear the debt now. If you will end up spending on other things, I would say keep paying on it and keep the savings.

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  6. Pay it down so what you owe is less than 25 percent of the limit. Small increments from there, as long as you arent using it and interest is acceptable. Dont give them a third of your savings, unless you really must.

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      1. Then it has done all the damage to your credit it can do. You have turned the corner with it. The only reason to give them a third of your savings is if your income is so insecure that you need to close out debts in a hurry.

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