The Money Saving Fifty (50)

Financial experts recommend saving up to six months’ worth of expenses so you’re prepared for emergencies. An emergency fund might cover expenses when you’ve lost a job, had unexpected medical bills, or you have to take a leave of absence from work to care for a loved one. If you don’t have money coming in, should you use your savings to pay off credit card bills?

Before you run to empty your savings account to pay off one or more credit card bills, there are some things you may want to consider.

If you have limited income, try to pay the minimum payment rather than paying the balance off each month. However, as soon as you’re back to work, it is important to start paying more than the minimum payment so you can get your balance back down to a reasonable level. Paying at least the minimum will keep your credit in good standing.

What do you do if you know you won’t have any income? Contact the credit card company and explain your situation. Let them know you’ll be laid off or whatever the problem may be that will keep you from making your payment. Try to see what arrangements can be worked out. They may be willing to lower your interest rate, postpone payments for a couple of months, or both. Do your best to abide by the agreement made.

Pros of using savings

If you have an emergency fund and won’t deplete it by paying off your credit cards, it might be worth doing so. This could be especially true if the cards have a high interest rate. The most interest you’ll probably earn for a traditional savings account is 5% and you’ll be lucky if you earn that. However, when you consider you could be spending as much as 19% or more interest on your credit cards, it’s easy to see how paying those off with savings could look like a good idea.

You could choose to leave your money in your savings account. However, if you choose this option, you may end up missing payments which could make your interest rate go up and ruin your credit. You may also be sued for the balance. Using your credit can help you avoid this possibility.

Cons of using savings

Since experts recommend having an emergency fund set aside for emergencies or the unexpected, using your savings account means you won’t have that fund. Sure, you can begin to build the balance in your savings account back up, but how long did it take to amass that balance the first time?

You may also feel that once you have the credit card paid off, it’s alright to use it again and drive the balance back up. When and if you use your credit card, be sure to pay the balance off each month to avoid paying interest on your purchases.

The choice of how to use your savings is entirely up to you, but it’s good to have others’ opinions on whether or not you should use your savings to pay off credit card bills. If you need further advice, be sure to speak with a qualified financial counselor to give you the best advice based on your own circumstances.