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Right now I have about 3k left in credit card debt which I've been steadily paying off. I could probably have it paid off completely in about 6 months to a year. However, I already have over 4k in my savings account. Would there be any benefit to paying it off all at once now, or does it usually make more sense to continue to pay it off incrementally?

marked as duplicate by keshlam, Dheer, Victor, mhoran_psprep, MD-Tech Sep 19 '16 at 16:01

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    Welcome to Personal Finance & Money. Variants of this question have been asked and answered many many many times. Please consider reading some of those answers first. – dg99 Sep 16 '16 at 15:20
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    If the interest you're paying on the credit card balance is more than the interest you're receiving on the bank account balance then of course you will save money by paying off your credit card in full immediately. There's no point in paying a high rate of interest to borrow money in order to keep it in the bank and receive a low rate of interest. – A E Sep 16 '16 at 20:18
  • "does it usually make more sense to continue to pay it off incrementally?" It does NOT USUALLY make more sense. – Karthik T Sep 19 '16 at 0:48
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The missing piece: what is the savings account for? Is it earmarked for something in particular, or is it just money you haven't spent?

Paying off the 3k balance immediately will save you money. Go look at your credit statement and look and see how much it's costing you in interest every month you continue to not pay it off. Certainly it's costing more in interest than the bank is paying in interest.

The exception is 0% interest. If somehow you manage to not be paying interest, and that deal is still in place, then MAYBE it's better to hold onto the cash for a rainy day. Even then, paying off the stupid bill and not having to worry about it does have benefits.

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    +1 for acknowledging the possibility that there are scenarios where not paying it off might make sense. – JBentley Sep 17 '16 at 8:02
  • Maybe it's just me, but I keep getting offers for credit cards at 0% interest for 18 months or more. Some even offered no-fee balance transfers from other cards. (Chase Slate did at one time.) So that's an option which allows you to pay off the $3K at no interest, while keeping your savings intact. – jamesqf Sep 17 '16 at 17:43
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If I were you, I would pay it off today.

Paying it off will still leave you with $1,000 in your account, which is a nice beginner emergency fund. After you pay off the credit card, use the money you had been throwing at the credit card each month to add to your emergency fund. In 6 months, you'll be back to where you are now, but with no debt, and you will have avoided 6 months of interest charges.

See "Oversimplify it for me: the correct order of investing" for more details and advice.

  • Generally agree, although leaving yourself with only $1k savings while then waiting to re-accrue the rest it is potentially dangerous. It's when you have little saved that you end up needing it the most ;) Okay, it's not, but it will feel that way when you get made redundant next month; ultimately, I'd say only the OP can decide where the best balance lies based on circumstances and perceived chance of problems coming up. – Lightness Races in Orbit Sep 17 '16 at 20:14
  • ++ for specifying that OP should take the money otherwise spent on the credit card and replenish the savings account. Not building that fund back up immediately would be a mistake. – RubberDuck Sep 18 '16 at 14:56
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    @LightnessRacesinOrbit: After paying off the $3k credit card debt you have $3k of additional available credit, for a total of $4k emergency funds - the same as before paying. The only difference is that you're no longer paying interest. – R.. Sep 18 '16 at 15:28
  • @R. Almost; credit may be revoked at any time and actually using that credit can be costly (what if you needed cash? taking cash out of a credit card is rarely free) but in general I do follow what you're saying. The other problem is that if you do find yourself in an emergency, you'd much rather use savings than credit, on which you need to start paying interest, at a time when presumably that's the last thing you want to do (because it's an emergency). It's a good way to get into spiralling debt. – Lightness Races in Orbit Sep 18 '16 at 15:52
  • @LightnessRacesinOrbit: Well, for some sense of "need to". Depending on the scale of the emergency you could just let the credit card debt pile up and eventually negotiate it way down or write it off in bankruptcy. – R.. Sep 18 '16 at 20:42
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It makes no sense for you to be paying it off incrementally, as you are constantly being charged interest on the amount that you owe. Paying it off immediately would get rid of further interest charges, thus giving you a lower total payment.

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well, if your living expenses can be covered for 6 months with 1k, then yes, I would suggest that, if not then I will suggest getting 2k in advance to lower your monthly interest and do monthly payments ton that 1k outstanding.

you should not only have 4k in saving you should keep at least 6 months worth of regular living yes 1/2 of your year salary!!

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    For many people, 6 months of living expenses != 6 months of income. Living expenses is the relevant metric. – njuffa Sep 16 '16 at 20:29
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    But if you pay the credit card off and need emergency money, you can just use the credit card. Having easy access to credit is a good substitute for having cash. So imo there's no advantage to keeping the cash. – MikeFHay Sep 17 '16 at 10:46
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    Except you generally can't pay your mortgage or rent with a credit card. But yeah, I'd just pay them off unless it was an extraordinarily great interest rate or I was really worried about losing my job. – Kat Sep 17 '16 at 19:38
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    well cash now a days you never see it, it is just considered positive balance in your finances, if you decide to have a greater debt than what you have as back up, you really don't have a back up see if SHTF right this instant you will have no Job and health insurance will be good until the rest of the month, how about car payments, cell phone bills all that stuff, you still have to pay that credit card, so that puts an even heavier load to what ever escape plan you come up with. it is better to have 15k in the bank than to have 15k credit. keep track of your finances and keep a spending limit – Allan Sep 17 '16 at 20:59
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    A line of credit is a better emergency fund. Around here, in Ontario, a LoC is normally free to keep open and empty, has a better interest rate and can be withdrawn against or transferred from to write cheques, pay rent etc. If in your part of the world cash advances are too burdensome to risk using for rent, you can't get a LoC and your income is shaky, then I agree with Allan. Otherwise, pay it off immediately. – mgjk Sep 17 '16 at 22:21

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