cancel
Showing results for 
Search instead for 
Did you mean: 

Pay off high interest card or save

tag
Sidewayzracer
Valued Member

Pay off high interest card or save

Currently im debatting with myself as to what i should do with left over cash from tax return.  i can pay off a credit card with a rate of nearly 24% apr while still keeping a partial of the return left over to help create a emergency fund. Or should i use the fund to create the fund out right as i currently dont have any cash tucked away for emergency situations.

 

paying off the debt would require more than half of the remaining return.

11/21/09 - Equifax score 599 12/7/09 - 603 4/25/10 - 645 4/17/2012 - 707
Message 1 of 9
8 REPLIES 8
Anonymous
Not applicable

Re: Pay off high interest card or save

Without knowing what your balance:debt ratio is on that card and how much money you are talking about... I'd recommend putting it to paying down your card.  

 

The money you can save by not having to needlessly pay high interest credit card financing charges is better suited to going towards that emergency fund.   Your line of available credit can be considered an emergency fund, that's why it's good to have low overall balances-- it's there when you need it.  Maxd cards + high interest, with a little cash stashed on the side is a much more dangerous financial position, in my opinion.  

Message 2 of 9
Anonymous
Not applicable

Re: Pay off high interest card or save

 


@Sidewayzracer wrote:

Currently im debatting with myself as to what i should do with left over cash from tax return.  i can pay off a credit card with a rate of nearly 24% apr while still keeping a partial of the return left over to help create a emergency fund. Or should i use the fund to create the fund out right as i currently dont have any cash tucked away for emergency situations.

 

paying off the debt would require more than half of the remaining return.


 

Both paying off the high interest CC and creating an emergency fund are worthwhile goals.  It's hard to give an opinion without knowing more about your situation -- what's your available credit, what is your risk of unexpected expenses, what does your future cash flow look like.  But all things  being equal, if your immediate expenses are taken care of, and you have a small amount of cash for the unexpected, then pay off that bad boy.  24% is killer.

 

 

 

 

Message 3 of 9
Sidewayzracer
Valued Member

Re: Pay off high interest card or save

 thanx for the advice guys i was leaning more towards the paying off the card completly

11/21/09 - Equifax score 599 12/7/09 - 603 4/25/10 - 645 4/17/2012 - 707
Message 4 of 9
tleventer
New Contributor

Re: Pay off high interest card or save

Here's a question for you -- you use the funds to pay off the card, but 2 days later your car needs $500 in repair work done.  How are you going to pay for this minor emergency?

 

for me, having an emergency fund of at least $1000 is absolutely essential.  Murphy WILL happen and if you don't have the fund, you WILL return to credit cards... at least I did. 

 

If you're REALLY close to paying it off, I can see going that route.  But if you're not and it will still take a month or 2, I'd start the emergency fund.

12/09 - EQ 683, TU 696, however hubby's EQ is 599 - guess what we're working on next!
1/4/10 - EQ 700!
5/7/10 - Midline score = 712! Hubby's EQ is now 613 :-)
Message 5 of 9
bicknar
Regular Contributor

Re: Pay off high interest card or save

Personally, I'd play the odds,

 

Pay off the card first.  Then the money you are saving on interest and monthly payments can go into the savings for emergencies.  Worst case scenario and your car needs those repairs you can put it on the card and start again.  Or with the lower utilization and the higher credit score you can grab a better car loan rate for a new one (going with the car scenario used earlier in the thread.

 

A


Starting Score: 556
Current Score: 672
Goal Score: 700


Take the FICO Fitness Challenge
Message 6 of 9
Anonymous
Not applicable

Re: Pay off high interest card or save

 


@tleventer wrote:

Here's a question for you -- you use the funds to pay off the card, but 2 days later your car needs $500 in repair work done.  How are you going to pay for this minor emergency?

 

for me, having an emergency fund of at least $1000 is absolutely essential.  Murphy WILL happen and if you don't have the fund, you WILL return to credit cards... at least I did. 

 

If you're REALLY close to paying it off, I can see going that route.  But if you're not and it will still take a month or 2, I'd start the emergency fund.


 

The OP said paying off the credit card would only take more than half of the tax return, so there's a little money left.  And if the car breaks down, it gets paid for on the CC, the funds to pay the CC can be committed next month, and in the mean time, no interest payments at 24%.

 

But I agree with you, the emergency fund is essential.  Not only that, padding is essential.  I would no doubt cry if I could see the grand total I've spent over the years from bounced checks, over the limit fees, and the like.  Anything to keep from scraping the bottom of the bucket is worthwhile.  Then budget for the reasonably expected but unplanned events in life such as car repairs.  Then the emergency fund on top of that.

 

 

 

 

 

 

 

Message 7 of 9
marty56
Super Contributor

Re: Pay off high interest card or save

If your job is very stable, I would PIF the card, otherwise it's a toss up.

1/25/2021: FICO 850 EQ 848 TU 847 EX
Message 8 of 9
Travis-84
Regular Contributor

Re: Pay off high interest card or save

Isn't a credit card an emergency fund in itself?  If you need the money for a true emergency, use your credit card.  I don't see how money collecting 1% interest is a good idea while you are paying 24% interest.  Pay off the credit card, then the money that would be going towards payments can go to creating an emergency fund and you can keep the 24% interest for yourself.

Message 9 of 9
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.