Keep money in savings or kill all CC debt?

Submitted by coconut_icedcoffee t3_10q000q in personalfinance

Hi all!

First time posting in this thread. I’m 23 and have been working for a company for about 18 months, and it’s hell with great pay. I’m looking for a different job to build more relevant experience to my career field, but most likely I’ll be looking at a 15-25k pay cut no matter where I go (I currently make about 82k).

Before I leave, I’m debating whether to keep my savings (10k in a savings account, I have most of my savings in a Roth) or completely pay off my CC debt (~7k) before getting ready to leave my current position.

My CC debt is spread over two cards with high credit lines, so my utilization is low and my score is great for my age, but each month I spend about $150 in interest alone (28.99% and 22.24% APR).

I’m trying to decide whether it’s better to shift my savings into a high yield savings account (I’ve been seeing between 3-4%, not sure how great that compares to other HYSA) and slowly pay off my debt, or to start clean with no credit card debt and slowly build up my savings again. Looking for any input or advice on the topic! TYIA

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t1mdawg t1_j6mzuic wrote

The Prime Directive should set you on the right path. Generally speaking, you're losing money by carrying that debt - 28% vs 3-4% in an HSA. Pay it off as quickly as possible

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coconut_icedcoffee OP t1_j6n0bj0 wrote

Thank you for linking the Prime Directive! I hadn’t seen this before posting, definitely a great resource!

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t1mdawg t1_j6n0xxs wrote

Lots of great info in the Wiki. Bogleheads is another great resource. Best of luck!

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MDfoodie t1_j6natk5 wrote

Also don’t leave your current job until you have landed a new position.

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sonnyfab t1_j6mzqj1 wrote

Pay off the cards. Currently, you've essentially borrowed $7000 at 28% interest so you can keep it in your bank account.

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coconut_icedcoffee OP t1_j6n0hix wrote

That’s a good point, I hadn’t thought about it. Basically paying the interest on the amount to keep it in the bank. When you put it that way it seems crazy to NOT just pay it off. Thank you!

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dmaxd123 t1_j6mztdc wrote

don't touch the roth, that is your future retirement.

live for the next few months on the future salary, that should give you plenty to knock out the CC debt and put a bit in the bank for a cushion when you move jobs

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coconut_icedcoffee OP t1_j6n04hv wrote

Oh definitely! I just wanted to mention the Roth so it wasn’t coming across that the 10k was my only savings in comparison to the debt.

I hadn’t thought of already shifting my budgeting to the future salary, which is a great idea! Thank you!

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vinceds t1_j6n2ijn wrote

Pay CC debt, the rates are so high you need to instantly pay them. That's effectively throwing away money compared to saving rates.

And stop keeping balances on your CCs. If you have an issue with spending, start looking seriously at your expenses and identify superfluous ones (like luxury clothing, ordering food, restaurants, coffee...)

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[deleted] t1_j6n2u7o wrote

Do a balance transfer so you're paying 0% interest.

Then slowly knock it out over 1 year

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GeorgeRetire t1_j6n1ndz wrote

You are wondering if you should pay off debt at 28.99% and 22.24% interest rate or keep your money in an account earning 3-4% ?

What am I missing here?

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coconut_icedcoffee OP t1_j6n9s21 wrote

My main concern was whether to hold the savings as I approach a new salary with whatever new job opportunity will come in the next month or so, in case of emergency. But then again, I think a better option would be paying off the CC debt and then I still always have the credit lines in case of emergency 😅

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Crustaceancult t1_j6mznzk wrote

Knock out the debt asap. You'll feel much better.

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SolutionLeading t1_j6n08fl wrote

Pay off the credit card debt, there’s not even a question about it. Rebuild your savings once paid off

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Sickranchez87 t1_j6n2rrj wrote

If you have good credit, search for zero interest credit cards and do a balance transfer. I’ve got about 30k in credit card debt from starting a business but haven’t paid a dime in interest due to the zero interest cards, one of which is a 2 year zero interest card. And I make auto payments in the amount that will have the cards payed off by the end of the zero interest terms. It was the only way I could do it. And I don’t have to touch my savings.

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TyrconnellFL t1_j6n0pck wrote

>20% APR debt is an emergency. Pay it off. Pay it off yesterday! You are hemorrhaging money and you don’t have to.

For reasonable amounts of money to have in a savings account, the difference between the best account and a good account will be too small to spend lots of time on. If you can go up by more than 1% APY, sure, but I wouldn’t check obsessively and I wouldn’t keep jumping from account to account. But definitely don’t stay in some 1% account, you’re just giving the bank a free loan. And absolutely don’t stay at a Chase/BoA/Wells Fargo account giving fractions of a percent.

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FrostingDistinct1777 t1_j6n1867 wrote

Pay off credit card debt. The question is, why haven't you transferred that to a 0% tranfer card?

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boredtiger2 t1_j6n54fh wrote

Stop putting money into the Roth. Don’t touch the Roth. Go draconian and Put all extra cash towards paying off cc debt.

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PrincesaShaky t1_j6ncmip wrote

i would suggest seeing if you are eligible for a low interest rate personal loan, something around 2-4% so it will balance out with the benefit of keeping your savings intact. pay off your credit cards with the personal loans, and consolidate the payment with a significantly lower interest rate. alternatively, you may qualify for a credit card with an introductory 0% interest rate for 18 months (chase freedom if you don't already have one is an option, but there are many others) the introductory balance transfer fee is usually within the 2-4% parameter, so you'll have 18 months of no interest to pay off your debt. those are my best suggestions. the personal loan is more interest but it gives you much longer to pay off your debt with smaller payments. it just depends on how much flexibility you'd like.

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ghostphantom27 t1_j6n3yg5 wrote

Pay off that credit card debt, OP. You’ll still have 3K leftover and that can be your emergency fund.

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emiliya06 t1_j6n41xq wrote

Easy, pay off your debt. And after you do that, make sure you only use your credit cards as much as you can afford to spend. Don't let balances build up, pay in full your statement balance every month. It is pointless losing money on interest. Then start building your savings. I am using Discover Savings and my current interest is 3.3%

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SuitableTurn t1_j6n58ar wrote

Knock out your CC debt first for sure. As others have said, there’s really no question that is what you NEED to do. CC debt is like borrowing from a loan shark. 20+% interest really is no joke.

You’re still young and have plenty of time to contribute to all those other tax benefit accounts (Roth/HSA). Just keep a rainy day fund and put the rest into paying off the debt.

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sephiroth3650 t1_j6n8zm6 wrote

With interest rates of 28.99% and 22.24%, it's a no-brainer. Pay off that debt immediately. It's crazy to keep money in your savings while paying out that kind of interest.

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ct-yankee t1_j6onk5c wrote

Pay off those cards. And don't use them at all unless you are paying them off every month.

Don't use credit cards for emergency purposes, work to build an emergency savings account.

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swollennode t1_j6n50sk wrote

People are telling you to payoff your credit card with your savings.

I’m on the opposite train in that you should save your savings. The reason is that you’re planning on getting a new job with a pay cut. You don’t know if your new job is going to keep you long term or if they’re just going to lay you off within a few months. You should always keep at least 6 months worth of expenses in a savings account for emergency. Losing a job is considered one of the emergencies. Likewise, being at a job for 18 months isn’t a guarantee that you’ll be there in the next 2.

I would transfer your current credit card to a 0% apr credit card so you can pay it off over time. Most credit cards have that offer if you have good credit and is opening a new card.

Always have enough savings for the unexpected.

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pepe-halpert t1_j6n88xl wrote

But that’s what the credit cards are for…they act as emergency savings when you don’t already have them in cash.

Sure, you can transfer to a 0% card and pay off slowly, but in theory it’s not any different than paying off now and using a 0% card to fund future purchases while you rebuild savings.

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swollennode t1_j6p3b77 wrote

How do you pay rent or mortgages with credit cards?

Most places don’t accept rent through credit cards, and banks definitely don’t accept mortgage payments via credit cards.

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