May 14, 2020Grow Your Savings or Eliminate Debt?
Which would you rather do in the next few months? Pay off your credit cards, or build interest on the money in your savings? Most people would choose the latter option. Making more money on your savings appears to be the most stable financial option.
The problem with this scenario is that you may end up paying more interest on your credit cards than what you will make in interest on your savings. This can result in you losing more money overall by postponing paying off your credit card bill.
Understand Your Credit & Savings Interest
Most financial planners will tell you upfront to get rid of all your credit card debt as quickly as possible. The main reason is that you could be paying high-interest on the debt that you are carrying on a monthly basis. Bank credit cards, as well as store credit cards, can have high rates from 15% going up to 29% APR.
On the flip side, big banks will normally offer an interest rate as low as 1% APY on the money that you have placed into your savings. While you may have more savings available, it is slowly being whittled away by the high-interest bank credit card that isn’t being paid off.
Pay Off Your Credit Cards First
Never let credit card payments build up. Instead, completely pay off the amount to avoid carrying the large interest rate from one month to the next.
Also, beware of the minimum amount that is allowed to be paid on your credit cards. If you only pay the minimum, it may take you decades to wipe out the balance that you owe, and you’ll be paying even more in the end.
You always want to pay more than what is suggested for minimum credit card payments. One way to do this is to make multiple small payments throughout the month that will add up. Then you can significantly lower your debt and pay less interest. With a lower credit card balance, you’ll be able to build up more of your savings.
Keeping your debt in control without damaging your savings is doable. As a PEFCU member, you may be eligible for a PEFCU VISA Credit Card at a better rate than banks offer; and our savings options typically offer great rates of return.
We’re Here to Help!
If you have questions on budgeting or need help reducing credit card debt, stop by or give us a call at 1-800-226-6673.
Each individual’s financial situation is unique, and readers are encouraged to contact PEFCU when seeking financial advice on the products and services discussed. This article is for educational purposes only; It does not constitute legal advice. If such advice or a legal opinion is required, please consult with competent local counsel.