Credit Card Debt and Savings Accounts
If you have a savings account with a good amount of money in it and you also have credit card debt, you might want to reconsider what you should do with the money in your savings account. Reducing credit card debt is desirable if you have the money available to do so.
Give Yourself a Raise
Many people feel that they need a savings account with a high balance to serve as an extra reserve in the event of an emergency. However, the typical savings account only provides an interest rate of around 2%. The interest most credit card companies charge you will be 14% or even up to 24% or more. You can give yourself an instant “raise” if you pay off your credit card debt with the money in your savings account.
Is Your “Cushion” Costing You?
Some consumers don’t feel secure unless they have an extra reserve of cash to cover the emergencies that inevitably arise. However, these consumers would improve their financial situation if they could shift their level of thinking. Eliminating credit card debt is preferred because it reduces the amount of interest a consumer will pay. If an emergency comes up, the consumer can then go ahead and get a cash advance. This scenario doesn’t work well for the consumer who will possibly charge up their credit card again in the near future. It will only work for consumers who are serious about not using their credit cards. And if the consumer doesn’t encounter an emergency at all, he or she will be debt free and not have to pay high interest rates on a credit card balance.
No Debt Is Too Small
You can follow the above suggestion even if it means you can only pay off the credit card debt on one of your credit cards. Just make sure you don’t use that credit card so that you will always have an available line of credit.
Make your credit cards work for you. Reduce your credit card debt if you have the means to and save your credit cards to use for emergency purposes only.