Using Your Saving To Pay Off Debt?

Should or should you not? Well, this depends on several factors like if you have children, do you pay rent or a mortgage, debt interest rate, and more. We are using the example below from two cents Lifehackers. The question is “I have $2000 credit card debt at 6.9% and $4000 in savings. Should I just pay off my credit card debt in full, or continue to make payments every month and build up my savings account more? I own a home and am worried about having extra cash on hand in case something breaks.” What would you do? The experts have made their suggestion and Canadians have left their opinion too. Loan Away will also share our opinion on what we suggest. We have attached the entire article.

Should You Pay Off Your Credit Card Debt With Your Emergency Savings?

You’ve got questions, we’ve got answers. Each Monday we’ll tackle one of your pressing personal finance questions by asking a handful of money experts for their advice.

This is what individual experts have to say generally about an issue that affects each person differently—if you want personalized advice you should see a financial planner.

Make Short-Term Sacrifices Now

“Given the amount of the debt and savings you have, I would not recommend that use your savings to pay off your credit card debt in full,” says Patricia Stallworth, an Atlanta-based money coach and host of the Minding Your Money 360 podcast. “Doing so would severely reduce your savings and leave you vulnerable if you had an emergency.”

Instead, Stallworth suggests refraining from using your credit card until your debt is under control and making more than the minimum credit card payment. Ideally, you’d also work a little harder to get some extra cash flow. That could include trying to take on extra work on the side, or scaling back your spending for a few months.

“In this case, $200 a month would pay off this debt in less than a year,” she says. “You have an opportunity to eliminate your debt and keep your savings, and you can do it in short order. But it may require some diligence and determination on your part.”

An interest rate of 6.9% is pretty low (the national average tops 16%), as is the $2,000 debt. With that in mind, Ilene Davis, a certified financial planner, suggests a similar approach to Stallworth’s, though advocates attacking the debt a bit more aggressively.

“What I would recommend to this client is to buy nothing that is not ‘life critical’ until the debt is gone, and then pay $150 per week before spending money on anything other than bills and basic necessities,” says Davis. “The debt would be gone in four months, and if this person is wise, they will then invest at least $100 of that $150 to start building wealth while having $50 per week to spend on more fun stuff.”

Paying down your credit card debt will enable you to use the available credit for possible home emergencies in the future.

thumbnail courtesy of twocents.lifehacker.com

The experts say do not use your saving to pay off debt since the interest is at 6.9%. Although you should clear your debt before saving, if the person clears their credit card debt, they would only have $2,000 left in their saving account. What do you think is best? Use the saving to pay off the credit card or to keep your saving and pay your credit card off monthly? Loan Away does not agree with the experts in the article. Here are the reasons why we think the person should use their saving to pay off their debt.

• Yes, you will have less cash available, but you will now have more credit available.
• You won’t have to pay the interest
• Credit cards are a source of emergency funds
• If you cannot pay your mortgage or rent with a credit card, you should keep the money in your account.
• Unless you have unstable income, paying debt is always the best option

In summary, paying off your debt is almost always the best option.

The post Using Your Saving To Pay Off Debt? appeared first on Loan Away.

Using Your Saving To Pay Off Debt? posted first on https://helloloanaway.tumblr.com