Introduction

If you’ve been wondering whether or not you should pay off your credit card debt or if it makes more sense to save money instead, this post is for you.

We’ll look at the pros and cons of both options so that you can make an informed decision on what’s best for your wallet.

A savings account has more liquidity

Accessing your money quickly is a good thing, even if you’re not going to use it immediately. If your car breaks down and you need $1,000 to fix it, for example, having an emergency savings fund can help.

You don’t want to turn to credit cards or other loans in times like these because of the high-interest rates they charge—and because they worsen financial problems over time. Savings accounts are FDIC-insured (Federal Deposit Insurance Corporation) and provide much-needed liquidity for unexpected expenses.

Credit cards usually come with fees that make things worse if you withdraw funds without paying off the monthly balance.

Many people end up paying several hundred dollars in fees when they use credit cards as an emergency fund instead of an emergency fund.

Savings accounts have lower interest rates

You might be pondering: what are the best savings accounts to use or how do I find the highest-yield savings account for my money? If you’re like most people, this is what you’re thinking about when determining whether or not to pay off your credit card.

First, let’s talk about finding the best savings account. There are two main ways to find these kinds of accounts: through an app or a website.

The first option is easier since it requires downloading an app and entering information about yourself (like how much money you want to save). However, there are plenty of apps with varying levels of quality, so while they can be helpful, they aren’t necessarily accurate at telling you which bank offers the highest yield on its savings accounts.

The second option—using websites—involves doing more research. Still, if done right and using reputable sites like Yahoo Finance or Bankrate, it can help ensure that your search results aren’t manipulated by companies who want their products highlighted over others.

Credit card debt can take a long time to pay off

Credit card debt is the fastest-growing type of debt in the United States. It can take years to pay out, and you’ll still owe much money—possibly as much as what you originally spent on your credit card debt.

If you want to save money for something else (like a house), don’t let your credit card debt payments keep you from doing so! Paying more than just the least payment will take less time and cost less overall.

In the long run, you’ll be better off. It would be best if you also tried to pay more than the minimum amount each time it is due.

Paying just the minimum amount will help you pay off your credit card debt relatively quickly (about 3-4 years). However, if you can spend more each month, you can pay off your debt faster.

You can even set up an automatic payment from your bank account to help ensure that you don’t forget about it.

If your credit card has a low-interest rate, it’s probably worth having it open

There are a few scenarios where it’s worth having a credit card debt. If the interest rate on your card is low (and if you can manage to pay off your balance every month), then there’s no reason not to keep it open.

Credit cards can help build up your credit history, especially if you’re starting and don’t have any other lines of credit yet. It’s crucial to remember that opening a new account makes it look like you’re “starting over” with your credit score, so make sure that this choice is really for you before signing up for a new card.

If that sounds like what might work for your situation, here are some tips:

Overdrawing your bank account can save you money in the long run

If you have a credit card with an outstanding balance, that’s probably a sign that you want to pay off the debt quickly. What if there was another way to save money? What if you could use overdraft protection on your bank account to save up for something big in the future?

The most acceptable way to do this is by writing checks or withdrawing against your overdraft protection limit. While it may seem strange at first glance, it can help save money in the long run.

Banks charge fees whenever they cover an overdrawn transaction; those fees can add up very quickly.

By using your overdraft protection limit as an emergency fund (or even simply transferring some money from another source), these fees won’t be charged at all and will keep more money in your pocket.

Unlike student loans or mortgages, credit card debt is viewed as bad debt

As we said before, credit card debt is considered harmful, unlike student loans or mortgages.

Credit card debt can be cumbersome to pay off if you only make the minimum payment because it’s easy to lose track of your progress and get discouraged by the fact that you’re still paying for those charges months later.

That’s why experts recommend making extra monthly payments on your credit cards to pay them off faster and save on interest charges.

The standard credit card rate is about 15%, meaning that if you owe $1,000 on a credit card debt with an 18% APR equaling to just $10 monthly payments over two years, you’ll end up paying over $1,500 in interest.

You should pay off your credit card and then start saving

If you owe credit card debt, you should pay off the card before starting to save. Your best bet is to make more than the minimum payment and allocate those extra funds toward paying off your debt as soon as possible.

To do this, you may consider making an additional monthly payment or transferring money from another account into your credit card each month until it’s paid off.

If you have a car loan at a higher interest rate than your credit cards, it may make sense to focus on paying that one down first because it costs more money each month than student loans and other debts would cost (in terms of interest charged).

However, if there is not much difference between their interest rates and they’re within a reasonable range (like 4%), I’d recommend paying off whichever one has the highest balance first.

Conclusion

We have covered ample ground here, but we hope it’s been an easy read. We know it can be challenging to make these decisions on your own, but if you follow the tips we’ve outlined here and think about what’s essential in life, you’ll hopefully come out on top. Good luck.