Category: Credit Cards

Credit Cards

Should you use your Savings to Pay off your Credit Card?

Many of us really like having some savings behind us. We like the feeling of security that we have some money there in case we need it. However, if we owe money on a credit card then we will be being charged interest on it and so this could be expensive.

It can seem simple. If you use savings to pay off a credit card, then you will not be paying the interest on the card and you will save money in the long run. You will also no longer have a debt hanging over your head and you will be able to relax without worrying about that. However, some people have a different attitude towards debt and would rather pay for the debt and have some savings as well. This is because they either have not calculated the cost of doing this or they are happy to pay the extra so that they can keep the savings.

It is worth giving it a bit of extra thought though. Consider that the credit card could be used to fall back on if you need money in an emergency and if you pay off the debt with your savings you will be saving money every month by not paying interest on the credit card. It is worth calculating how much you will be paying each month and then adding that up over the course of a year. Then you should add up how much you will get paid in interest on your savings and it should enable you to work out which will be the cheapest option for you. It is worth calculating it for the long term as a months’ worth of interest may seem very small but if you add it up over the course of a year you will see how much it could potentially cost you if you do not pay it off and this could influence you to change your mind and want to pay it off.

If you have been working hard saving up, it can be difficult to use the money. You may have been saving up for something specific such as a holiday or to treat yourself to something and using the money to pay off a credit card, perhaps when you used it to buy things you cannot even remember buying, it can be very difficult. It is perfectly understandable that you might be reluctant to use this money for any purpose apart from what you saved up for. It is a very personal decision as well, as to whether you are happy to use that money to save you the cost of interest in the long term or whether you would rather keep it for the purpose that you saved it up for an use it for that. Common sense and logic may say one thing, but emotion will say something else and not everyone would agree on which the right decision would be to make in this situation.

If you want to make sure that you are as good with your finances as possible, then it is wise to make sure that you try to make decisions based on maths rather than emotion. However, it is not always easy for us to do that. We will often be tempted to buy things, perhaps because we want to gift other people, treat our family or feel that it will not be available again and so it is easy to spend more than we have. Sometimes this is because the marketing is just too good, but it could also be because we like the feeling of being able to give to others or feel that we deserve a treat because we have worked hard. It is always worth thinking hard about our motivation behind the decisions we make when we buy things. Some are obvious, such as paying our electric bill so that we do not get cut off, but others can be a lot more complex. It can be worth thinking through things more, if you find that you are spending too much on your credit card, so that you know whether it is better for you to avoid making that purchase and avoid the debt or whether you are happy getting the debt because you really need or want the purchase.