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Should we use savings to pay down debt?

Feb 20, 2007 | | Comments Comments Off

Dear Liz: My husband and I are far from “drowning” in debt, but we’re trying to pay off our credit card bills by Christmas because we would like to buy a house by next summer. We have a good-size savings account but I hate to use it for credit card payments. On the other hand, we are living like paupers trying to pay down this debt. Any idea how to make life a little easier?

Answer: Sure. Get over your hate.

It makes little sense to have money sitting in a relatively low-rate savings account when you’ve got credit card debt that’s almost certainly accruing finance charges at a higher rate. Use your savings to pay down your cards. Once that debt’s been paid off, you can beef up your savings again by redirecting the cash that had been going to pay the credit card companies.

If you had been planning to use your savings as a down payment, you may need to delay your home plans by a few months as you rebuild the account. But it’s important for you to get in the habit of paying off your credit card bills in full every month for your financial security and your future peace of mind.

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Categories : Budgeting, Q&A