Use savings to pay of debt?

[DrewJersey]

Hi everyone:

So this is my first post and, hopefully, my first step towards financial nirvana.

I have about 12k in credit card debt and just about the same in savings. Does it make sense for me to just cash out my savings, pay off the debt, and start with a clean slate?

[riverwed070707]

How long will it take you to pay the debt if you don't use your savings? Can you list the debts and interest rates individually? If it were me, I'd probably use savings to pay off any high interest rate cards/loans and snowball teh rest rather than wiping savings clean.

[breathemusic]

I'm guessing most people here are going to ask for more detail about the debt. Credit cards, loans? What are the rates? Etc.

But in my opinion, the quick answer is you could probably cash out some of that savings, but I think it's always good to retain at least a little bit of an Emergency Fund (EF). Otherwise there's always a chance you'll pay off the debt only to have a medical expense, home or car repair, etc come up that forces you to take on debt again.

[DrewJersey]

Here's the breakdown of the debt:

CC1: $4,233.84 @ 9.24
CC2: $2,068.13 @ 7.24
CC3: $4,550.54 @ 10.24

Ok... I lied. Credit Card debt is just under 11k.

This is just credit card debt... I do have other loans, but those are a whole other monster. If need be, I can include that information too.

Without tapping into my savings, I could probably pay off the debts in about a year... if I were to be EXTREMELY strict with myself, which I wouldn't be opposed to doing at all. It's just that I think I'd prefer to have that psychological relief of not having credit card debt.

Thanks for all of your comments!

[riverwed070707]

Here's the breakdown of the debt:

CC1: $4,233.84 @ 9.24
CC2: $2,068.13 @ 7.24
CC3: $4,550.54 @ 10.24

Ok... I lied. Credit Card debt is just under 11k.

This is just credit card debt... I do have other loans, but those are a whole other monster. If need be, I can include that information too.

Without tapping into my savings, I could probably pay off the debts in about a year... if I were to be EXTREMELY strict with myself, which I wouldn't be opposed to doing at all. It's just that I think I'd prefer to have that psychological relief of not having credit card debt.

Thanks for all of your comments!

Given this info, I'd jumpstart your payoff by wiping out CC3 using savings and then snowball from there. Use whatever you can each month to pay down CC1, then move on to CC2. Its a small amount and if you take it seriously you should be able to wipe it out quickly.

[bjl584]

Here's the breakdown of the debt:

CC1: $4,233.84 @ 9.24
CC2: $2,068.13 @ 7.24
CC3: $4,550.54 @ 10.24

Ok... I lied. Credit Card debt is just under 11k.

This is just credit card debt... I do have other loans, but those are a whole other monster. If need be, I can include that information too.

Without tapping into my savings, I could probably pay off the debts in about a year... if I were to be EXTREMELY strict with myself, which I wouldn't be opposed to doing at all. It's just that I think I'd prefer to have that psychological relief of not having credit card debt.

Thanks for all of your comments!

If you can pay it off in a year anyway, then I wouldn't wipe out my savings. What if you had an emergency of some kind? Then, you would end up with more CC debt.

[DrewJersey]

Thanks all of you for the advice!

[mrpaseo]

Here's the breakdown of the debt:

CC1: $4,233.84 @ 9.24
CC2: $2,068.13 @ 7.24
CC3: $4,550.54 @ 10.24

Ok... I lied. Credit Card debt is just under 11k.

This is just credit card debt... I do have other loans, but those are a whole other monster. If need be, I can include that information too.

Without tapping into my savings, I could probably pay off the debts in about a year... if I were to be EXTREMELY strict with myself, which I wouldn't be opposed to doing at all. It's just that I think I'd prefer to have that psychological relief of not having credit card debt.

Thanks for all of your comments!

This plan is only good if you are disciplined enough to not charge up your cc's again. You should be using only one CC too, not sure why you have a balance on three. Get rid of all but one.

No knowing anything about your situation and going on just what you told us, I would cash out all but $2,000, save that for any emergencies. Your back up "Emergency fund" will be your PIF credit cards but that is TEMPORARY.

Use the $10,000 to pay off as much CC debt as you can starting with the highest interest rate. Then snowball the last CC.

Next, build your emergency fund to $5,000.

Then move on to pay off your remaining debt.

But that's me.
Ray

[AccountantSalary]

Until you pay off your debt, you're losing money because of interest payments. So pay those off first.

Then put away your credit cards. Or you'll be on the same treadmill with no savings to pay the debt off.

[jpg7n16]

I'd do partial. Pay off the two highest rate CCs immediately. Leave the other, with the intention of paying down as you are able.

That would prob keep about 1 months expenses in cash. I wouldn't really go below 1 month's expenses cash on hand.

The good thing about paying aggressively on CC debt is that you can re-borrow in a pinch. You can't reborrow Student Loans or Car Loans to pay for food, but you can with a CC. So I rec paying aggressively.

Aggressive, not insane. $0 cash on hand is not good.


Do you have a buffer built up in your checking account? Is $12k the ONLY cash you have? Or are there checking accounts, CDs, etc.?

[Auditum]

Being responsible for your debts is always important, so I prefer having no debt and I'd prefer to start from zero. But sometimes, if you are planning some purchases in near future it is better to keep money and debt in CC. If you plan your purchases later - cover your debts. You'll sleep better :-)

[vickiarevalo]

Some of us operate strictly on mathematical formulas (I usually fall in this group), some of us operate completely on emotion. But most of us are somewhere in between. The real key is finding out where on the spectrum you fall and aligning your financial decisions to that sweet spot.