Saturday, June 5, 2010

I have about 4K in credit card debt (12% interest, I think) and about 17K in savings in an acct that makes about 1.5% interest. Should I just pay off the credit card debt with the cash I have or try to pay it off slowly? Thanks!

Normally I'd tell you to calculate the difference between what you're earning in interest and what you're paying on the card, and factor in how many months' worth of living expenses you have saved. But in this case it's an obvious no-brainer: pay off the debt!

You've got four times as much in savings than you owe, so you won't miss that $4,000, and since you've already got $17,000 saved I'm assuming you're a disciplined saver and will replace that money relatively quickly. Besides, there's a 10.5 percentage point difference between what you're paying in interest and what you're earning, so at this point, paying off the debt is a better investment from a return perspective. Pay off the card and get free.

Ask me anything


beermoney said...

Ye U would pay off the debt too. That 12% is high not to mention that the banks have lots of tricks to jack up interest rates. So pay it off and be done with it unless you hope to be winning money from the lottery or something.

Ethel said...

Hi Keith! I love following your posts and I agree with you that paying off debt is a better investment. Coz', paying it later and slowly is just plain stressful! My friend, Lori had a fair share of experience regarding paying off debt. She was bombarded with credit card debts because she missed a couple of payments due to a family crisis. After a thorough analysis of her finances, she was able to pay off her balances through debt settlement. San Bernadino County, thankfully have several good financial advisers to accommodate her credit concerns. Now, she's able to manage her finances just fine. Well, thanks for the great post Keith! More power to your blog!

freda said...

I have visited lot of post bout yours is the best one i have seen for ever.Thank you.


johndouglas said...

I appreciate the concern which is been rose.This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone.

Debt Relief