I’m a 22-year-old college student working part-time, earning around $1,200 a month. I don’t pay rent right now, but I have $3,400 in credit card debt and $3,300 in savings. I’m trying to save about $10,000 by May, which is somewhat achievable, but I have the credit card debt to deal with. I’m paying off around $100 a week on the card. Should I use my savings to pay off the debt and start fresh, avoiding credit card use while trying to save $10,000? I’m moving soon and need to pay for a master’s degree out of pocket next year. I’ll also start paying my own rent in May. I want a good credit score for a new lease; currently, it’s 692.
What do you think?
The interest on the savings is less than what you are paying for the credit card debt.Pay what you can, putting aside $500 for emergencies.
This! However, I would advise setting aside $1000 for emergencies and using the remaining funds for debt.
Without a doubt, I would use some of the savings. Perhaps put aside $1–2k for emergencies, although I assume you are paying a significant amount in interest. Don’t add any more funds to savings until the credit card has been paid off.
Pay off the credit card to avoid paying interest. Create a detailed budget to determine how much you’ll need to save to meet your target; with the statistics you’ve provided, saving $10,000 by May seems unlikely. Spend less money on a master’s degree.
Save a thousand dollars. Empty the remainder onto the credit card. After making as much progress as you can on the outstanding debt, start saving for all of your other objectives. Best of luck
You have nothing at all if your credit card debt and savings are both high.
Unless you have no debt, you can’t say that you have savings.
Any interest you have on savings will be completely consumed by credit card interest.
After all debt has been paid off, begin saving.
Naturally, keep a little amount of emergency cash on hand at all times.
Your loan should be paid off with all remaining funds.
Yes, I would pay off the debt especially if you have rent to pay later. But, if you choose not to, you may always call your creditor and request a different credit card with a reduced interest rate. Depending on your credit score, they might occasionally transfer you around.
This is purely a math problem. You’re likely earning about 1% interest on your $3,300 in savings while paying 29% interest on your credit card debt. This means you’re losing nearly $1,000 a year in interest. With $3,300 in debt and $3,300 in your account, you’re paying $1,000 annually in interest. But with no debt and no savings, you pay $0 in interest.
You should use your savings to pay off the debt. While having an emergency fund is important, if an emergency happens, you can use the credit card or a different one with a lower interest rate. A 29% interest rate is extremely high and can keep you trapped in debt. It’s not worth borrowing at that rate; it’s essentially robbing from your future to afford something now. For loans like car loans or mortgages, lower interest rates make borrowing reasonable, but 29% is too high. To improve your credit score, set all recurring bills to AutoPay to avoid late payments.