Exhaust Savings to Pay Off Credit Card?

[wesman1299]

Hello all

New member here, my name is Wes. I am currently a college student studying to become a CPA.

I currently have a credit card balance of roughly $1500, accuring 29.9% interst (!!!). I pay $100 each week and plan to have this balance paid in full around September of this year.

I have $2000 in an emergency savings account and I am very tempted to throw most of that money toward this card to pay it off as soon as possible. I have every intention of making 'payments' to myself after this card is paid off, to accumulate some money to throw at my student loans once I do graduate. I have calculated that I will only save $30 in interest if I were to pay off this card tomorrow.

Is this a good idea? Or should I keep my emergency savings and continue my weekly $100 payments to pay off this card? Would a balance between the two be effective?

Thanks in advance for your input.

[disneysteve]

Welcome. As you've figured out, even though the rate is obscenely high, the amount of money involved is not thankfully.

I would split it. Since you have $100/week free, I'd suggest taking half of your EF - $1,000 - and sending that to the credit card. Then pay the rest over 5 weeks. After that, use that $100/week to rebuild your EF.

Seeing as you are studying a financial discipline, you have hopefully learned your lesson. Don't ever use a credit card again to make a purchase that you can't afford to pay for in full when the bill comes. Don't ever carry a balance again.

[JoshuaHeckathorn]

I agree with DS. I would leave $1,000 in your EF and use the other $1,000 to knock out the credit card balance a bit sooner.

[wesman1299]

Seeing as you are studying a financial discipline, you have hopefully learned your lesson. Don't ever use a credit card again to make a purchase that you can't afford to pay for in full when the bill comes. Don't ever carry a balance again.

Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.

[JoeP]

Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.

What kind of car is that?

[kork13]

I would pay off the credit card today.

That would leave $500 in your EF. You could then throw the $100 per week that you were applying to your CC and throw it at your EF. Instead of paying $100 per week which would include interest, you would be saving $100 per week and gaining interest....plus be debt free.

Agreed. It's fairly short-term, and you'll have your EF back to $1000+ in just over a month (which is a typical "absolute minimum"). Paying that much interest is outrageous, and I'd say you need to get out from under it immediately.

(side note -- did you miss a payment or something? I thought non-penalty rates that high were barred with some of those latest consumer finance reforms...?)

[jpg7n16]

I would also pay it off in its entirety.

It's a CC. You can subsequently use it to finance an emergency if need be.

So you'd be left w/ $500 in cash and at least a $1500 line of credit. I think that's reasonable, but I'd certainly focus on building back up the EF to a reasonable level of a few months expenses.


Another option would be a balance xfer to a 0% offer. Then you could keep the cash on hand, but not subject yourself to the obscene interest rate.

[disneysteve]

Another option would be a balance xfer to a 0% offer.

Except the 3% transfer rate on $1,500 would be $45 which is more than he will pay in interest.

[bjl584]

Thanks for the advice. The problem was that I ran into unexpected transmission troubles on my car and my credit card was the only way to get back on the road again. The bill was far north of $3500. The last thing I would EVER consider doing is purchasing unnecessary items on a credit card. I will, however, purchase fuel on this credit card once I am done paying it off, and pay the balance in full each month to keep my credit score up.

Going forward I would suggest keeping more in your Emergency Fund. $2000 is obviously not enough.

[jpg7n16]

Except the 3% transfer rate on $1,500 would be $45 which is more than he will pay in interest.

Not always.

https://creditcards.chase.com/slate-credit-card/blueprint

No balance transfer fee when you transfer a balance during the first 30 days your account is open. After that, the balance transfer fee for future transactions is 3% of the amount transferred with a minimum of $5.

I still say to pay the whole thing in full. Just throwing out another option if OP was concerned about keeping cash on hand in the meantime.

[wesman1299]

Thank you all for your input. What I will likely do is pay my $100/week until the balance is at $1000, then I will use half of my EF to pay the remaining balance. Thereafter, I will start making the same payments to myself into a money market account in hopes of never having to have a balance on a credit card again!

What kind of car is that?

It's a Ford Focus. The transmission is a story for a different forum. Long story short, had to get a rebuilt transmission even though mine did not have so much as 80,000 miles on it. Transmission mechanic said he has never had to do such extensive work on a transmission with so few miles in his 20+ years in the biz. Lucky me!

(side note -- did you miss a payment or something? I thought non-penalty rates that high were barred with some of those latest consumer finance reforms...?)

About two years ago I started training at a new job and wound up one day late on a payment simply due to my forgetfulness due to the training. They jacked up my rates about 10%.

Going forward I would suggest keeping more in your Emergency Fund. $2000 is obviously not enough.

My emergency fund was in a different bank up until six months ago. There is also a longer story as to why I did not use some of that money for my car repair, but I will keep that postponed until another time. Needless to say I will keep a much larger cushion in my EF from here on out.

[Coronet]

It's a Ford Focus. The transmission is a story for a different forum. Long story short, had to get a rebuilt transmission even though mine did not have so much as 80,000 miles on it. Transmission mechanic said he has never had to do such extensive work on a transmission with so few miles in his 20+ years in the biz. Lucky me!

I can't provide sound financial advice, but your Focus troubles reminded me of my Focus troubles!

I had a 2005 Focus until February of this year. 65,000 miles on it. Bought it new in 2005. In the time I had it it had two transmission failures. One at 40k miles that was covered under the 5year/50k warranty. The second at 65k that was going to cost me $3500 to repair. Both times when I asked the mechanics if this was "common" they both shrugged and said it was common for Focuses from the 2004-2006 era to have transmission issues. Since my 2005 Focus was only valued from Kelly Blue Book at around $4500 and the repair was $3500, I turned in the towel and traded it in for a much more reliable Subaru. I had nothing but mechanical problem after mechanical problem with my focus in the 6 years I owned it and I took great care of it. People were startled when I told them about all the issues I had with it considering I took very good care of it/never missed check-ups/tune-ups.

Since 2005:
- Two transmission failures
- Failed alternator
- Car batteries died multiple times
- Rotors worn down twice (I don't drive very aggressively, and my break pads were changed frequently, so I don't understand this)
- Air conditioning fluid leaked out twice
- Back window defroster electrical malfunction

Sorry to hear about your car issues.

[snafu]

Personally I'd pay $ 1,000. from EF now just to reduce the interest. I suggest calling CC company and ask for a reduction in interest rate being charged. Worst outcome, they say no, best outcome they agree as this is extra-ordinarily high with savings accounts paying so little. How much does the interest total so far since the car repair?

[dczech09]

Pay off the credit card immediately. You will still have $500 left over.

With your $100 per month, build up that emergecy fund to about $2,000.

You may want to consider setting money aside for car maintenance. I personally do this and it helps a lot!

Also, if you have some emergency car repair that is "all of a sudden," that is what the emergency fund is designed for! The reason you have the emergency fund is so that you do not have to use the credit card.

[wesman1299]

Personally I'd pay $ 1,000. from EF now just to reduce the interest. I suggest calling CC company and ask for a reduction in interest rate being charged. Worst outcome, they say no, best outcome they agree as this is extra-ordinarily high with savings accounts paying so little. How much does the interest total so far since the car repair?

At one point in time, the interest was accumulating at a rate of nearly $5 each day. Luckily I was able to pay down a large hunk of the balance and I'm almost done paying the thing off.