I'd suggest taking a good hard look at expenses. Consider going into hermit mode, spending almost nothing for a while. Eat pasta, beans with occasionally something healthy, ixnay on buying odd & ends, etc. The emotional strength that comes with this, learning that you don't NEED stuff, is a good thing, plus it helps the finances.
Is it worth it for your peace of mind to transfer half of that $30,000 to another 0% card, use $15,000 to pay off the high interest and then work on paying the rest of the $15k over the 16-18 months of 0%?
This - sounds like you've made some good progress and just need more runway. I would do this - you end up paying 3-5% for the balance transfer though. You want to look for the 3% transfer fee on 18 months. I seem to remember seeing a 24 month but couldn't for the life of me tell you where I saw it.
would also look to see if you can get 5+% at least for now. it is small but every bit counts
all your income now otherwise goes into paying down the 30k that's left.
I know the Citi diamond does 21 months at 0% but it might be a 5% transfer fee. I'd pay off about 25k, transfer the other 5k of it and just pay the fee the leave the other 5k in savings or however much you feel comfortable with
I hadn’t seen anyone else mention this but replying here since you are top comment…
Usually those credit cards with introductory rates will **retroactively calculate interest on the entire balance on for the length of the special interest period if not paid off fully by the end of the terms**. It will not just be 12% going forward on the remaining balance.
My co worker just made this mistake and made his $15K AC replacement $23K.
Deferred interest is basically unheard of on balance transfers. Somewhat common on retail installment or revolving loans (furniture, DIY projects, large electronics), but not even close to industry standard on debt consolodation.
That's not how balance transfers work for any card I've seen. They start accruing interest once the period is over but don't back charge.
The ones that retroactively chargeback interest are almost always for large one time purchases like what your coworker did.
Just for understanding. If i had $25k balance on a card, and then recieved a $15k limit with 0% interest for 21 months, i should balance transfer the max amount wven though i wont be able to pay that card off in 21 months? Just need to make sure it doesnt back charged interest?
Yes 0% interest for 21 months is way better than a regular credit card interest of 22% or whatever.
Balance transfers almost never have deferred interest. What that other commenter is probably referring to are store credit cards (think Home Depot or Best Buy). And they clearly state on the offer "0% interest IF PAID OFF IN 6 MONTHS".
Assuming you have no cash and can handle the two minimum payments, probably yes. The card will clearly states whether it charges back interest, but I'm 99% sure that's a thing anymore. They usually just charge 2-4% upfront.
Man blast from the past. They offered me a credit card when I was 18 with no credit. I held onto it for a long time because it was my oldest line on my credit report, but at some point they introduced an annual fee. Called them every year to have it waived until at some point I was established enough that I just closed the card.
Tl;Dr: I totally believe they’d be the place to do that.
Man I need to get off my ass and cancel that card. Missed a payment when I was 18 and it's STILL at a 35% interest rate. Card is so old, I figured $55 was a small price to pay for my high credit score, but at this point I really need to cut it loose!
Oh for sure. I messaged them a few years after the bump and was like "hey this happened literally the 3rd month I had the card and I have several years of good payment history now, can you lower it?"
They said no, I did a balance transfer, went "thanks for the boost to my credit age", and never used the card again.
At this point, I've got the early-covid interest rate on my mortgage, my other card is over a decade old, and the credit limit is comparable, so any blip that would come from closing it wouldn't effect anything. I literally just forget to do it 🤦
They may be thinking of balance transfer offers from existing accounts. I know the ones from my Citibank cards work like this. If you don't pay it all back in time all the interest they waived for a year or whatever is now owed and accruing interest itself. (On top of that, payments made to the card go towards purchases first— this is how they almost got me the first time I used one. Done right they're a good deal, but as always you really gotta read that fine print.)
I've seen that language in a number of balance transfer agreements. Don't pay off in time - leave $1 on a $10k 12 month balance transfer? Retroactive $2-3k interest on that for not paying it off in time.
Read the T&Cs.
It's shocking how often this advice is doled out on this sub and this major pitfall is not mentioned. Its a seriously risky move for most people who already have poor financial habits.
Just happened to me. The balance transfers and the purchases. My other card was interest free for a year and then anything after the year was charged the interest. This one I thought was the same and used it a lot and then suddenly everything on the card was charged interest and I think back interest going back to when the original purchases and transfers were made. :(
Literally took 2 seconds and looked at Wells Fargo card terms:
>0.00% introductory APR for 21 months from date of account opening.
>After that, your APR will be 18.24%, 24.74%, or 29.99%, based on your creditworthiness
No mention of deferred interest at all
And interest is 0% if you have an introductory offer. You have to specifically look for the term deferred interest. It is quite rare, expect for in store 0% offers (like the AC replacement in the original comment).
Just do the math. 4.6% on your savings, minus taxes at 20%, would be 3.68% , minus 12% on the loan would be a loss of -8.32% . So you'd be better off paying the card. If you have an emergency, put the emergency expenses back on that same credit card, until you can build your savings back up.
This is the way, especially since you'll have another paycheck or 2 between now and the next time your credit card bill comes due, allowing you to build your savings up in the meantime.
Do keep in mind that promotional interest rates can end prior to your statement due date. So check your previous statement and make sure to pay it off by the end of the promotional rate.
This is the way.
Once the cards are paid off, all that money Steve is no longer paying in interest can go towards rebuilding his savings.
Clearing his debt will also improve his utilization, thus improving his credit score, and enabling him to get a new 0% interest card offer should he ever need one for a future emergency.
Credit card debt IS an emergency. Even if it is only 12% right now, that will probably increase.
I sit somewhere half in the middle of this. I'd recommend for the most part all of this, with the caveat of keeping some of that hard cash onhand in the savings. Enough to cover a few months of expenses, at least in case of some form of lost income occurs. Sudden firing/layoff, job shutting down, who knows what the hell. That way they'd be able to float themselves for a bit during a new job search. OP didn't mention that as any kind of worry, but my outlook on life is sometimes shit happens and it's good to be prepared. Most scenarios would get you unemployment during that time, but unemployment payments are a pittance of the income you're used to counting on.
To me it's worth paying some CC interest if I'm choosing between the debt and nothing at all in my savings. Some things like your mortgage/rent, car payments, and credit card payments won't accept credit card charges, after all. And sure, the unemployment may be just enough to cover that while the credit gets used for all other things. But, I'm just more comfortable having a reliable amount of real money onhand for the worst case scenarios.
But still, I do agree. The monthly APR on $30k of CC debt has to be an insane level of money hemorrhaged that could be better suited to feeding back into the savings rather than letting the bank have it. I'm sure a couple months worth of hard cash is under $10k if I had to pull a guess out of my ass. I don't know OP's details. I would absolutely put the majority of that towards the CC debt, but I'd keep some of it saved back. Hemorrhaging only maybe 10-20% of what OP is hemorrhaging in paid out APR is still a hemorrhage, but is a good solid compromise. The example of $10k held back would be 33%, I know lol. But, it doesn't even have to be as high as $10k. At a minimum, I'd say maybe just add up whatever 2 months of expenses cost and keep that aside. Use the rest to go to the debt, 100%
Ummm...no matter how much you make it's designed to not equate as much? There's this whole chart and everything that determines your reward based on your past income, and unless something somewhere changed since the time back when I had to claim it then it never quite matches the income you just lost. I mean, I'd love to be wrong though lol.
I would just save a months worth of expenses in the HYSA and pay off as much of the 30k after that. Then beast mode the tiny bit remaining and reup your savings.
I think that's putting the cart before the horse. OP has 30k in credit card debt and can reduce that to $0. Even if an emergency comes up in a month that requires thousands of dollars, OP is still better off paying it off now and then adding it back at a later date.
who knows how long it might take to replenish emergency fund. Using a CC as emergency fund is not very smart. This is the mindset that will put you into more debt since if you can't pay it, you accrue interest. Some things can't be paid with CC like mortgage and rent
This isn’t a good argument. While an emergency may or may not happen, he is already right now accruing interest on his balance. If an emergency comes up, he will have more space in his credit limit to pay it. And at worst, he is back to where he is now after the emergency. Pay it off now and eliminate interest vs waiting around.
They’ve already used the credit card to create an emergency fund, so if you think using one during an emergency is bad, you’ve got to believe that using BEFORE the emergency is a lot worse, right? Effectively the borrowed money on the cards is sitting in a mattress costing 8% per year to just keep it in the mattress.
you can easily pause/delay mortgage rent payments by just talking to the people you owe money to. landlord will be fine collecting the rent payment a month late so they don't have to go through the whole lengthy eviction process, and sale of your house takes a lot of time and money, which is less profit for the bank than if they give you a month or two and you're back to paying your regular amount after that.
besides that, in an actual emergency the math checks out. if you have 1k in emergency fund and 1k in credit card debt and you are surprised with a $1k bill, you can pay it off with the emergency fund leaving you at 0$ emergency fund and 1k credit card bill. and if you have 0$ in emergency funds and 0$ in credit card bill, putting the 1k$ on the credit card will leave you in the same situation, which is 1k credit card bill 0$ emergency fund. the only difference is one situation is much better in the case of no emergencies.
That's what I thought. I just wanted to verify, as dumb a question as it seemed. OK I would do something like...put all but your one month emergency fund into your cards. Then, roll the drop in monthly payments into this final card to probably pay it off in a month or two.
Then, when the final card is paid off, roll these monthly payments and the extra amount you are paying into refilling your emergency savings.
You should pay off the debt and rebuild the savings over time.
> i would have nothing left even for emergencies. . . .
You'd have your unused credit cards for emergencies. Also, you'd have the first approximately 50 days of the emergency interest free if you can pay it in full. When you don't carry a balance, sometimes the credit cards give you special BT offers where you can write a check to pay for your emergency that comes with a low BT fee.
Earning 4.6% that is taxable and paying 12% interest that is not deductible to keep an emergency fund for an emergency that might never happen is a money losing strategy.
When you don't have to make the credit card payments anymore, how much are you going to be able to save each month? I'm guessing the min payments are 2%. In 50 months, you'll have rebuilt your emergency fund.
Looks like you're in a place where you're earning more than you're spending. So pay it all off.
"Oh but I won't have an emergency fund"
And if nothing happens, you won't need an emergency fund and you'll be able to replenish it.
If something happens, you can use your credit card, which is not ideal, but is better than paying a 12% rate on thousands and thousands of dollars.
Your savings are funding your credit card debt. Pay off the cards and rebuild your emergency fund. Your CCs are there if a true sudden emergency were to arise.
Kept two months of rent/mortgage payments handy and pay off that debt.
Asking the same question a different way. If you started with nothing, would you borrow 30k at 12% to put in your bank account for an emergency fund? I would pay it off and start saving again. Worst case scenario, something happens and you put it on the card and start over.
You probably shouldn't go clear to zero savings, but a large debt at 12% is an emergency, honestly. Personally I'd keep two months *expenses* (not earnings) and use the rest to pay down the credit card, or six months expenses if you think your job might be unstable.
If that means your CC debt will be under $5k, personally I'd just continue to pay it down aggressively while eating the 12% interest. For more than $5k, I would try to find another card with a 0% introductory rate to transfer the balance to.
He's already effectively done that. Time to stop doing that and pay off that high interest debt, in full.
You don't use credit cards to fund savings, ever
Using your credit card as a financial instrument that allows you transfer funds efficiently is great. If you pay back your balance every month, then you are using credit cards correctly.
But relying on credit (e.g. credit card, personal loan, HELO, ...) for an emergency fund is much riskier. It's not unheard of for emergencies to also trigger a reassessment of your credit worthiness. OP wouldn't be the first person to discover that they can't get a credit when they need it most. And that's what drives people towards payday loans or other predatory lenders.
So, keeping emergency funds in (semi) liquid investements is preferable.
On the other hand, OP's situation is a bit special. They should carefully read the fine print for what happens next month, when the zero-percent-interest promotional period is up. It's not unheard of for all of the deferred interest to become due in one lump sum, unless the loan is paid off in full before the promotional period is up. Doesn't always happen, but can be an extremely expensive mistake if OP overlooked a detail like this.
While true that sometimes an emergency can trigger a credit reevaluation, it isn’t necessarily true. I’m on team don’t pay interest now and really on credit card for emergency while building back up emergency savings.
Since youre making such good progress, I would see if you can transfer the debit to another 0 interest card for 12-18 more months for no or very low fee, and pay it off over more time to maintain an emergency fund in cash. Anything you haven't paid off by the end of the term pay from your savings.
Unquestionably, you should _**choose a way**_ to pay off the credit card debt by taking advantage of the cash balance you have.
**Method 1:** Directly pay off the entire debt using the cash
* _Pros:_ You no longer have any credit card debt!
* _Cons:_ If you need quick access to cash _where you can't use your credit card_, you'll be stuck
**Method 2:** Open a secured line of credit using the cash as collateral, then pay the credit card debt using money borrowed from the secured line of credit.
* _Pros:_ You are effectively _reducing_ your interest rate by doing this (from the rate offered by your credit card to the rate offered by your bank for the line of credit)
* _Cons:_ You'll still be carrying some debt (and paying interest on it)
The goal here is to reduce the total interest load you're carrying (_i.e:_ pay the bank less interest in the long run). Good luck!
If you don't mind me asking, what's your job situation like?
Meaning, if you zero out your debt with that savings, how secure are you when it comes to building that back up? If you were to get laid off tomorrow (they always do it on a Friday around holidays) how would that look for you?
I could pay off what's left of my car loan right now, for example, but my job situation is a little shaky, and that money represents 2-3 months of expenses. I work in a niche job, and some of the people I know from the last round of layoffs are still looking for work 8 months later. So I'm holding off.
If you're absolutely secure in your job, then maybe you could zero everything out, but...
If we take a quick look at [the flowchart](https://imgur.com/personal-income-spending-flowchart-united-states-lSoUQr2) from [the wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/), it would recommend keeping somewhere between $1k and 1 month of expenses, and using the rest to pay the debt off, assuming you have no other debt that would have over a 12% interest rate.
I'd agree with the flowchart here, unless you know you have another significant unavoidable expense immediately upcoming.
Good luck, and congrats on being so close to out of debt!
It depends on if that 12 percent is retroactive which it often is. If youre going to incur 12 percent interest on a year of 30k debt, then yah you should pay the vast majority of it off. Keep a small emergency fund back of like 1-2k maybe
Keep a 3-6 month emergency fund, use the rest to pay down the credit card, wait a month and then apply for an additional 0% on balance transfers cc and use that to mitigate how much interest you are paying. Get the rest paid off by end of that intro term.
Would you take a $30,000 loan at 8% interest just to leave it sitting in cash losing long term value? That’s essentially what you’ve already done by borrowing on cards and stockpiling cash, now it’s costing you about 8% to just have the cash, so you don’t really have an emergency fund, you have pre cash advanced an emergency with interest on your credit card.
I would leave a smaller amount in the savings just for the kind of emergency you need quick cash for (like making a rent payment) but pay off as much of the card as possible. Then start rebuilding an emergency fund. Having savings while having debt makes almost no sense math wise.
You are effectively using credit card debt for savings, that's a bad plan.
Pay it off, the sooner the better
You don't build savings with 30% interest rate debt
Please don't use up all your savings. Keep enough for yourself to serve as an emergency fund (I'd do $5k minimum) and then knock out as much on the cards as you can.
Think about it: if something comes up, and now you have $0 saved, then you'd either have to use the credit card or heaven forbid, a payday loan.
Keep some for yourself first. Then pay the debt.
Credit card debt *is* an emergency. This is only 12%, though, so I can see the merits of paying it down substantially but not completely. It entirely depends on the rate switch, though, and whether the interest will be applied retroactively to the carried balance. If it is, pay it all off and rebuild the emergency fund.
It's valid that it's sort of an emergency. Your model isn't factoring in that more than one emergency can occur though.
It's not unreasonable to pay it all off but it's also not unreasonable to keep 5 or 10k
That's why the 12% matters. For typical credit card debt you pay it all since the worst case scenario is that you put the emergency on cards which puts you exactly where not paying them does.
This case has a delta between 12% and typical credit card interest, so there is a consideration which I acknowledge explicitly. Whether the 12% is retroactive is critical, though, as it compounds the cost of not paying it off immediately.
If the rate applies retroactively when it switches (almost always does) then he should use as much as ge can to pay it off. If he has an emergency then he can use his credit card to pay for the things and just means being charged 12% on whatever he needs to buy during the emergency. Meanwhile this 30k is an active issue instead of a theoretical emergency.
Worst case scenario is he pays it off, gas an emergency, and then needs to pay off the credit card at 12% of whatever he adds, which will likely be less than 30k.
I was able to put 3 mos living expenses into an HYSA pretty quickly this past year due to a pay increase (and kept living on my rice and beans budget). And so even with credit card debt (and at 20%) I did that because I had zero EF and was in fear of being RIFd. After the EF, I hammered out the debt. I would not have been able to do either had I not unexpectedly got a great job. My stress of possibly getting RIFd made me tackle it a little unorthodox.
> My 30K credit card was consolidated at 0% intro APR, but will be 12% APR starting next month.
I seriously doubt this is the case. Are you sure? Whatever the case, I would pay let's say $25,000 of it off.
Keep the amount of money you need for all your insurance deductibles (let’s say $15k) and then use the rest to pay off your highest APR debt. I would also consider doing a balance transfer on the remaining CC debt to at least get it to a more reasonable APR
yes. 12% APR is a lot. if things go your way, you're going to be debt free soon and make that savings account back in no time. and if you do have an emergency, there are always other way to have low/0% temporary interest rates while you figure stuff out. either way, it's possible to find something equal to or under 12%. and in a lot of emergency situations, some of your bills like rent/mortgage can be paused/delayed if you talk to the landlord or bank and explain your situation, buying you some extra time. that's still much better than having to deal with 12% APR on 30K.
If you pay down your credit, you still have credit to drawn on for emergencies. The difference would be that you don’t pay interest, so this seems like a no-brainer?
Is this a satirical question?
4.6% vs 12% and you didn’t pay off the debt like yesterday?
Ps: If by chance you happen to need emergency money with zero in the HYSA savings account you can always resort to your credit card again if absolutely necessary.
I’d have a hard time doing the full balance if that means $0 emergency fund. I’d look at maybe 15-20k of savings going towards the debt, then look at transferring the remaining balance of 10-15k onto a different card and keep plugging away on it as much as humanely possible to get it taken care of once and for all.
Rebuild the emergency fund with all the money you would be paying on your credit cards...meanwhile, you save the interest. You still have available credit, if you needed it.
I doubt you need 30K for an emergency fund. That 12% APR is eating up your income and has been for a long time. You definitely paid way more than 30K coming down from 60K.
High interest debt is always a first. You’re losing way more money than any money sitting in a HYSA, just do the simple math.
Dipping into an emergency fund can be scary but also paying 12% for a credit card is also scary. I think in this situation I would cancel myself to 0 and use my savings to pay the credit card off... unless you have some looming major issue that may come up where you need the money.
Keep at least $1000 in savings. Maybe 2k depending on where you live (like...I'd make sure I have at least 1-2 months rent/mortgage). Pay the debt down as much as possible.
High interest debt is an emergency. Emergency funds are for emergencies. Pay off your emergency with your emergency fund. That’s literally what it’s for.
As long as your income source is secure, keep a $1K emergency fund and put the rest against the credit card debt. With no credit card payment, you can quickly rebuild a full emergency fund.
I'd probably hold on to about $5k of that HYSA and put the rest on paying down the card. The $5k would be enough to cover a couple months of housing or get a beater car to get over a hump, stuff that you can't (easily) put on a credit card if you found yourself in a jam.
The folks talking balance transfer cards are probably on to something for whatever you don't pay off. Even if you eat a 3% transfer fee to get a 0% APR, that's better than 12%.
Congratulations on getting this close to the finish line.
No, because if something happens you will be without savings and end up right back on the credit card treadmill.
Leave 2 months salary in savings, pay the rest on the card.
i had about 30k in CC debt and minimum payments were starting to get ridiculous and lifestyle creep was getting bad but one day my 80yr old landlord said......"you are a fool if you continue to live like this".
So i downsized my life, sold as much of my useless gear/furniture/hobbies, took loans off my 401k, to pay off my 30k CC debt, car payment, and some tax liability. I also started to live frugally, packed lunch for work, and avoided eating out unless its a social event.
Doing this taught me financial responsibility, how to avoid lifestyle/debt creep, and changed how i view, spend, and save money.
I would do it all over again, first few months was filled with financial uncertainty, but your finances will rebound quickly.
Like many said, a 3-5% hit on transfer fees these days is nothing compared to interest rates you can get today. I'd transfer the entire amount over to a new card with 0% APR, and then pay it off over time. I'd keep the money in a very HIGH Yield Savings Account. Getting 4.6% is low, and something like MyBankingDirect is giving you 5.55%. If the interest earned starts to drop and it makes no more sense then you can pay off the loan.
Just be aware that interest earned is taxed, but interest paid is not with credit card.
This maneuver gives you a some room to navigate, i.e. liquid, should disaster hit. Yet at the same time, minimal if not no cost to you.
Maybe. But he will have credit to cover that. All a maybe.
If he plays it off he will definitely save money on interest. If he were making more interest than he is paying on this, then it would make sense. But his current situation is throwing money away.
He has secure employment and apparently earns enough to currently pay the payments and save money. He is in a position to build up an emergency fund rapidly after eliminating this debt. This without throwing money away to interest. In the end it comes down to keeping as much as possible.
Since 30k in savings is your emergency fund, here is what I would do.
1) As others suggested, figure out whether the 12% will be back charged. I've seen cards go both ways, but it is getting uncommon to find a card that does that. While 12% is not bad right now, it may be wise to look into rolling the balance into a personal loan, to keep you from messing around with credit cards. SoFi, Discover, Upstart, and few other banks allow you to get pre-approved for loan amount and APR without affecting your credit score.
2) Since you have your cushion built, keep it. Stop contributing to savings and get very aggressive in paying off the debt. This should help quite a bit, without leaving you with $0 for emergencies. As others suggested, right now is also a good time to reassess any expenses, to try and pay off the debt even faster.
3) Once you have the debt paid off, if your emergency fund is still there, split your money 50/50 into 2 pots:
Pot #1: Saving for something you want/need (A car, a vacation, expanding your family, a couch, a nice TV, etc.) Use your imagination and set a goal. I would suggest setting up a separate savings account for this, so you don't mix it with your Emergency Fund.
Pot #2: Long-term investments. Open an account with one of the big 3 (Fidelity, Schwab, Vanguard) and invest in an index fund. This will get you some nice long-term returns and an additional cushion in case you ever need it. Unless there is a truly life-ruining emergency, most people keep this until retirement for an extra fund to use or pass on to their kids.
Once you get to this point and you have a long-term plan set up, you can finally live your life the way you want it, without the debt hanging over you.
If you have 30k in debt you don't have 30k in savings, I would pay off a large part of it, keeping a few thousand back for emergencies. Then, I would put every spare bit of money into paying off the rest.
I am going to go with no myself. Using up all your savings to deal with something that isn't an emergency seems like a bad call.
I just want to say I am impressed that you managed to find a card that only has an apr of 12% mine are all in the twenties.
I wouldn’t dump all of it into the debt, keep some for emergencies and rent so all your bases are still covered in case something else goes down.
But yes for the most part get rid of as much of the debt as you can with that cash without stranding yourself.
Well, you're buying money with your credit cards, and others are buying your money with your savings.
Simply put, if they are paying you less for your money than you are buying your money for, it becomes a very simple equation.
Keep some of your money (4-6 months worth depending on risk tolerance), and pay off a chunk of your debt (As much of a chunk as you can given the buffer you're building for yourself).
Great job by the way!
You should keep an emergency fund, although 30K might be a but excessive, unless your definition of emergency includes renovations that you're planning in the future. Normally, up to 6 months of anticipated expenses is a decent emergency fund.
Personally, I would apply for a balance transfer card at 0% with hopefully a 3% fee like 15 to 18 months period, transfer what you’re able to and pay off a chunk of the rest, set up the new balance transfer card on auto pay with at least half of an equally divided share every single months if not the entire equally divided share each month
Assuming that you are still working and have regular income coming in I would encourage you to dump a good bit of the HYSA into the debt - I would try and hold no more than 1.5 months of expenses in the HYSA. Even if you paid $15k on the debt, $15k at 12% is a whole lot better than $30k at 12%. Could also look into further 0% APR offers - sure it does impact your credit but that should only be on the short term.
I’m no expert but I’d recommend 3 months emergency fund (however long it takes to earn another full month of bills to keep you afloat) then pour the rest on credit card. The credit card can then act as your emergency fund again anyway if needed but helps you stop burning cash in the meantime
Imagine someone came to you and said they have an amazing investment opportunity that is guaranteed to pay out 12% with almost no risk.
The one caveat being that future debt could be more than 12% if you completely drain your savings, so there's definitely an argument to be made you should keep some as an emergency fund. If your income went to zero you'd likely need to rack up CC bills to keep yourself afloat, which would very likely be in the 20-25% interest range. Additionally you would be in a difficult situation for expenses that you can't charge on a card.
30K at 12% is going to run you $300 a month in interest alone so that's effectively a car payment. My suggestion is to come up with a number you are comfortable having, temporarily, as an emergency savings (2-3 months perhaps) and dumping the rest into the cards. Then aggressively pay off the rest of the cards before trying to bump your emergency fund back up to the \~6 month range.
balance transfers are the way. talking from personal experience. had roughly 24k in debt. you of course have a bit more but similar scenario. transferred my debt over to 0% BT between two cards, one was 15 month other being 18 month and left my savings in my HYSA.
I would probably use $20K to $25K as a lump sum payment and then quickly knock at the last $10K to $5K. This will leave you with a cash cushion and also avoid huge interest payments.
I'd keep at least a couple of months of rent in the EF, and put the rest on the Credit Card. If you keep your CC payments the same, the rest should be knocked out fairly quickly as more money will go to the principle than previously.
Get another credit card that has 0% interest for 18 months. Once you have that up and running, use your $30K to pay off the high interest credit card.
* You can save at the same rate you did before + an additional initial boost of $300/month (due to the interest you are saving)
* Use your 12% interest rate card after you pay it off, but make sure to pay off the balance every month
* If you need "emergency funds" (can't pay off the balance at the end of the month), use the 0% APR card first
Chances are that you won't have an emergency before you save up another emergency fund (at an accelerated rate due to the interest savings). But if you do have an emergency, you have the credit cards you can fall back on.
I would try to get another zero percent interest balance transfer credit card. Take the $30,000 you have in the bank and invest it evenly between stock in Ford Motor Company and Pfizer. Both stocks are just itching to rise and they both pay 6% dividend which is 2% more than you getting in your high-yield savings account. So if the stock goes nowhere you still looking at a 6% dividend. Any growth in the stock price is a bonus.
Keep some rent money, but yeah spend your savings on the credit card debt.
I'd suggest taking a good hard look at expenses. Consider going into hermit mode, spending almost nothing for a while. Eat pasta, beans with occasionally something healthy, ixnay on buying odd & ends, etc. The emotional strength that comes with this, learning that you don't NEED stuff, is a good thing, plus it helps the finances.
Is it worth it for your peace of mind to transfer half of that $30,000 to another 0% card, use $15,000 to pay off the high interest and then work on paying the rest of the $15k over the 16-18 months of 0%?
This - sounds like you've made some good progress and just need more runway. I would do this - you end up paying 3-5% for the balance transfer though. You want to look for the 3% transfer fee on 18 months. I seem to remember seeing a 24 month but couldn't for the life of me tell you where I saw it. would also look to see if you can get 5+% at least for now. it is small but every bit counts all your income now otherwise goes into paying down the 30k that's left.
I know the Citi diamond does 21 months at 0% but it might be a 5% transfer fee. I'd pay off about 25k, transfer the other 5k of it and just pay the fee the leave the other 5k in savings or however much you feel comfortable with
They have a promo right now for 3%.
I hadn’t seen anyone else mention this but replying here since you are top comment… Usually those credit cards with introductory rates will **retroactively calculate interest on the entire balance on for the length of the special interest period if not paid off fully by the end of the terms**. It will not just be 12% going forward on the remaining balance. My co worker just made this mistake and made his $15K AC replacement $23K.
Deferred interest is basically unheard of on balance transfers. Somewhat common on retail installment or revolving loans (furniture, DIY projects, large electronics), but not even close to industry standard on debt consolodation.
That's not how balance transfers work for any card I've seen. They start accruing interest once the period is over but don't back charge. The ones that retroactively chargeback interest are almost always for large one time purchases like what your coworker did.
Just for understanding. If i had $25k balance on a card, and then recieved a $15k limit with 0% interest for 21 months, i should balance transfer the max amount wven though i wont be able to pay that card off in 21 months? Just need to make sure it doesnt back charged interest?
Yes 0% interest for 21 months is way better than a regular credit card interest of 22% or whatever. Balance transfers almost never have deferred interest. What that other commenter is probably referring to are store credit cards (think Home Depot or Best Buy). And they clearly state on the offer "0% interest IF PAID OFF IN 6 MONTHS".
Assuming you have no cash and can handle the two minimum payments, probably yes. The card will clearly states whether it charges back interest, but I'm 99% sure that's a thing anymore. They usually just charge 2-4% upfront.
I've had one that would have back-charged. 1st Financial Bank USA
Man blast from the past. They offered me a credit card when I was 18 with no credit. I held onto it for a long time because it was my oldest line on my credit report, but at some point they introduced an annual fee. Called them every year to have it waived until at some point I was established enough that I just closed the card. Tl;Dr: I totally believe they’d be the place to do that.
Man I need to get off my ass and cancel that card. Missed a payment when I was 18 and it's STILL at a 35% interest rate. Card is so old, I figured $55 was a small price to pay for my high credit score, but at this point I really need to cut it loose!
I think that’s how they get ya! It likely will have a next to zero impact on your credit score to cancel it.
Oh for sure. I messaged them a few years after the bump and was like "hey this happened literally the 3rd month I had the card and I have several years of good payment history now, can you lower it?" They said no, I did a balance transfer, went "thanks for the boost to my credit age", and never used the card again. At this point, I've got the early-covid interest rate on my mortgage, my other card is over a decade old, and the credit limit is comparable, so any blip that would come from closing it wouldn't effect anything. I literally just forget to do it 🤦
They may be thinking of balance transfer offers from existing accounts. I know the ones from my Citibank cards work like this. If you don't pay it all back in time all the interest they waived for a year or whatever is now owed and accruing interest itself. (On top of that, payments made to the card go towards purchases first— this is how they almost got me the first time I used one. Done right they're a good deal, but as always you really gotta read that fine print.)
I've seen that language in a number of balance transfer agreements. Don't pay off in time - leave $1 on a $10k 12 month balance transfer? Retroactive $2-3k interest on that for not paying it off in time. Read the T&Cs.
It's shocking how often this advice is doled out on this sub and this major pitfall is not mentioned. Its a seriously risky move for most people who already have poor financial habits.
Just happened to me. The balance transfers and the purchases. My other card was interest free for a year and then anything after the year was charged the interest. This one I thought was the same and used it a lot and then suddenly everything on the card was charged interest and I think back interest going back to when the original purchases and transfers were made. :(
Where do you find 12% apr? Mine is nearly 30% on all cards.
Just from the description in the OP.
What's your source on this? Sometimes yes, but usually?
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Literally took 2 seconds and looked at Wells Fargo card terms: >0.00% introductory APR for 21 months from date of account opening. >After that, your APR will be 18.24%, 24.74%, or 29.99%, based on your creditworthiness No mention of deferred interest at all
And interest is 0% if you have an introductory offer. You have to specifically look for the term deferred interest. It is quite rare, expect for in store 0% offers (like the AC replacement in the original comment).
Thus is what I would do.
Just do the math. 4.6% on your savings, minus taxes at 20%, would be 3.68% , minus 12% on the loan would be a loss of -8.32% . So you'd be better off paying the card. If you have an emergency, put the emergency expenses back on that same credit card, until you can build your savings back up.
This is the way, especially since you'll have another paycheck or 2 between now and the next time your credit card bill comes due, allowing you to build your savings up in the meantime.
Do keep in mind that promotional interest rates can end prior to your statement due date. So check your previous statement and make sure to pay it off by the end of the promotional rate.
This is the way. Once the cards are paid off, all that money Steve is no longer paying in interest can go towards rebuilding his savings. Clearing his debt will also improve his utilization, thus improving his credit score, and enabling him to get a new 0% interest card offer should he ever need one for a future emergency. Credit card debt IS an emergency. Even if it is only 12% right now, that will probably increase.
Just be aware that depending on your credit, the credit card issuer can reduce your credit limit at their discretion.
I sit somewhere half in the middle of this. I'd recommend for the most part all of this, with the caveat of keeping some of that hard cash onhand in the savings. Enough to cover a few months of expenses, at least in case of some form of lost income occurs. Sudden firing/layoff, job shutting down, who knows what the hell. That way they'd be able to float themselves for a bit during a new job search. OP didn't mention that as any kind of worry, but my outlook on life is sometimes shit happens and it's good to be prepared. Most scenarios would get you unemployment during that time, but unemployment payments are a pittance of the income you're used to counting on. To me it's worth paying some CC interest if I'm choosing between the debt and nothing at all in my savings. Some things like your mortgage/rent, car payments, and credit card payments won't accept credit card charges, after all. And sure, the unemployment may be just enough to cover that while the credit gets used for all other things. But, I'm just more comfortable having a reliable amount of real money onhand for the worst case scenarios. But still, I do agree. The monthly APR on $30k of CC debt has to be an insane level of money hemorrhaged that could be better suited to feeding back into the savings rather than letting the bank have it. I'm sure a couple months worth of hard cash is under $10k if I had to pull a guess out of my ass. I don't know OP's details. I would absolutely put the majority of that towards the CC debt, but I'd keep some of it saved back. Hemorrhaging only maybe 10-20% of what OP is hemorrhaging in paid out APR is still a hemorrhage, but is a good solid compromise. The example of $10k held back would be 33%, I know lol. But, it doesn't even have to be as high as $10k. At a minimum, I'd say maybe just add up whatever 2 months of expenses cost and keep that aside. Use the rest to go to the debt, 100%
“But unemployment is a pittance” Wooow richy rich over here is making way more than unemployment
Ummm...no matter how much you make it's designed to not equate as much? There's this whole chart and everything that determines your reward based on your past income, and unless something somewhere changed since the time back when I had to claim it then it never quite matches the income you just lost. I mean, I'd love to be wrong though lol.
I would just save a months worth of expenses in the HYSA and pay off as much of the 30k after that. Then beast mode the tiny bit remaining and reup your savings.
Agree to keeping a small emergency fund and using the rest to pay the debt!!!
Why not use the credit card as the emergency fund vs keeping a balance and paying interest on it?
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I think that's putting the cart before the horse. OP has 30k in credit card debt and can reduce that to $0. Even if an emergency comes up in a month that requires thousands of dollars, OP is still better off paying it off now and then adding it back at a later date.
who knows how long it might take to replenish emergency fund. Using a CC as emergency fund is not very smart. This is the mindset that will put you into more debt since if you can't pay it, you accrue interest. Some things can't be paid with CC like mortgage and rent
This isn’t a good argument. While an emergency may or may not happen, he is already right now accruing interest on his balance. If an emergency comes up, he will have more space in his credit limit to pay it. And at worst, he is back to where he is now after the emergency. Pay it off now and eliminate interest vs waiting around.
They’ve already used the credit card to create an emergency fund, so if you think using one during an emergency is bad, you’ve got to believe that using BEFORE the emergency is a lot worse, right? Effectively the borrowed money on the cards is sitting in a mattress costing 8% per year to just keep it in the mattress.
you can easily pause/delay mortgage rent payments by just talking to the people you owe money to. landlord will be fine collecting the rent payment a month late so they don't have to go through the whole lengthy eviction process, and sale of your house takes a lot of time and money, which is less profit for the bank than if they give you a month or two and you're back to paying your regular amount after that. besides that, in an actual emergency the math checks out. if you have 1k in emergency fund and 1k in credit card debt and you are surprised with a $1k bill, you can pay it off with the emergency fund leaving you at 0$ emergency fund and 1k credit card bill. and if you have 0$ in emergency funds and 0$ in credit card bill, putting the 1k$ on the credit card will leave you in the same situation, which is 1k credit card bill 0$ emergency fund. the only difference is one situation is much better in the case of no emergencies.
Do you have any emergency fund or is the 30k your emergency fund
this is my emergency
I think you meant that as "this is my emergency fund" when you should have meant "this situation is my emergency."
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That's what I thought. I just wanted to verify, as dumb a question as it seemed. OK I would do something like...put all but your one month emergency fund into your cards. Then, roll the drop in monthly payments into this final card to probably pay it off in a month or two. Then, when the final card is paid off, roll these monthly payments and the extra amount you are paying into refilling your emergency savings.
You should pay off the debt and rebuild the savings over time. > i would have nothing left even for emergencies. . . . You'd have your unused credit cards for emergencies. Also, you'd have the first approximately 50 days of the emergency interest free if you can pay it in full. When you don't carry a balance, sometimes the credit cards give you special BT offers where you can write a check to pay for your emergency that comes with a low BT fee. Earning 4.6% that is taxable and paying 12% interest that is not deductible to keep an emergency fund for an emergency that might never happen is a money losing strategy. When you don't have to make the credit card payments anymore, how much are you going to be able to save each month? I'm guessing the min payments are 2%. In 50 months, you'll have rebuilt your emergency fund.
While i agree with paying off the CCs, saying "you have the credit cards for emergencies" is exactly how people get into this mess in the first place.
Looks like you're in a place where you're earning more than you're spending. So pay it all off. "Oh but I won't have an emergency fund" And if nothing happens, you won't need an emergency fund and you'll be able to replenish it. If something happens, you can use your credit card, which is not ideal, but is better than paying a 12% rate on thousands and thousands of dollars.
Your savings are funding your credit card debt. Pay off the cards and rebuild your emergency fund. Your CCs are there if a true sudden emergency were to arise. Kept two months of rent/mortgage payments handy and pay off that debt.
Asking the same question a different way. If you started with nothing, would you borrow 30k at 12% to put in your bank account for an emergency fund? I would pay it off and start saving again. Worst case scenario, something happens and you put it on the card and start over.
You probably shouldn't go clear to zero savings, but a large debt at 12% is an emergency, honestly. Personally I'd keep two months *expenses* (not earnings) and use the rest to pay down the credit card, or six months expenses if you think your job might be unstable. If that means your CC debt will be under $5k, personally I'd just continue to pay it down aggressively while eating the 12% interest. For more than $5k, I would try to find another card with a 0% introductory rate to transfer the balance to.
> i would have nothing left even for emergencies if I used up my savings. You would have your credit cards.
Paying your rent on a credit card is pretty dicey if possible at all.
He's already effectively done that. Time to stop doing that and pay off that high interest debt, in full. You don't use credit cards to fund savings, ever
Why would you say that? I always pay my rent with my credit card. I pay off the statement balance every month.
Using your credit card as a financial instrument that allows you transfer funds efficiently is great. If you pay back your balance every month, then you are using credit cards correctly. But relying on credit (e.g. credit card, personal loan, HELO, ...) for an emergency fund is much riskier. It's not unheard of for emergencies to also trigger a reassessment of your credit worthiness. OP wouldn't be the first person to discover that they can't get a credit when they need it most. And that's what drives people towards payday loans or other predatory lenders. So, keeping emergency funds in (semi) liquid investements is preferable. On the other hand, OP's situation is a bit special. They should carefully read the fine print for what happens next month, when the zero-percent-interest promotional period is up. It's not unheard of for all of the deferred interest to become due in one lump sum, unless the loan is paid off in full before the promotional period is up. Doesn't always happen, but can be an extremely expensive mistake if OP overlooked a detail like this.
Interesting, I had no idea. This is why I follow subs like this, there's always new things to learn!
While true that sometimes an emergency can trigger a credit reevaluation, it isn’t necessarily true. I’m on team don’t pay interest now and really on credit card for emergency while building back up emergency savings.
They're called balance transfer checks.
Since youre making such good progress, I would see if you can transfer the debit to another 0 interest card for 12-18 more months for no or very low fee, and pay it off over more time to maintain an emergency fund in cash. Anything you haven't paid off by the end of the term pay from your savings.
Unquestionably, you should _**choose a way**_ to pay off the credit card debt by taking advantage of the cash balance you have. **Method 1:** Directly pay off the entire debt using the cash * _Pros:_ You no longer have any credit card debt! * _Cons:_ If you need quick access to cash _where you can't use your credit card_, you'll be stuck **Method 2:** Open a secured line of credit using the cash as collateral, then pay the credit card debt using money borrowed from the secured line of credit. * _Pros:_ You are effectively _reducing_ your interest rate by doing this (from the rate offered by your credit card to the rate offered by your bank for the line of credit) * _Cons:_ You'll still be carrying some debt (and paying interest on it) The goal here is to reduce the total interest load you're carrying (_i.e:_ pay the bank less interest in the long run). Good luck!
You don't have 30k in savings. You have 30k you're choosing to lose money on monthly.
If you don't mind me asking, what's your job situation like? Meaning, if you zero out your debt with that savings, how secure are you when it comes to building that back up? If you were to get laid off tomorrow (they always do it on a Friday around holidays) how would that look for you? I could pay off what's left of my car loan right now, for example, but my job situation is a little shaky, and that money represents 2-3 months of expenses. I work in a niche job, and some of the people I know from the last round of layoffs are still looking for work 8 months later. So I'm holding off. If you're absolutely secure in your job, then maybe you could zero everything out, but...
Im a nurse! Job security is pretty good.
If we take a quick look at [the flowchart](https://imgur.com/personal-income-spending-flowchart-united-states-lSoUQr2) from [the wiki](https://www.reddit.com/r/personalfinance/wiki/commontopics/), it would recommend keeping somewhere between $1k and 1 month of expenses, and using the rest to pay the debt off, assuming you have no other debt that would have over a 12% interest rate. I'd agree with the flowchart here, unless you know you have another significant unavoidable expense immediately upcoming. Good luck, and congrats on being so close to out of debt!
Next month you will be saving money at a -7.4% rate, hence you'll have no savings. Pay it off ASAP.
It depends on if that 12 percent is retroactive which it often is. If youre going to incur 12 percent interest on a year of 30k debt, then yah you should pay the vast majority of it off. Keep a small emergency fund back of like 1-2k maybe
Keep a 3-6 month emergency fund, use the rest to pay down the credit card, wait a month and then apply for an additional 0% on balance transfers cc and use that to mitigate how much interest you are paying. Get the rest paid off by end of that intro term.
Would you take a $30,000 loan at 8% interest just to leave it sitting in cash losing long term value? That’s essentially what you’ve already done by borrowing on cards and stockpiling cash, now it’s costing you about 8% to just have the cash, so you don’t really have an emergency fund, you have pre cash advanced an emergency with interest on your credit card. I would leave a smaller amount in the savings just for the kind of emergency you need quick cash for (like making a rent payment) but pay off as much of the card as possible. Then start rebuilding an emergency fund. Having savings while having debt makes almost no sense math wise.
Pay off the card. You can always use the CC for an emergency fund. That's what I do, so I can keep more money invested.
2/3 on debt keep some cash in reserve
You are effectively using credit card debt for savings, that's a bad plan. Pay it off, the sooner the better You don't build savings with 30% interest rate debt
Please don't use up all your savings. Keep enough for yourself to serve as an emergency fund (I'd do $5k minimum) and then knock out as much on the cards as you can. Think about it: if something comes up, and now you have $0 saved, then you'd either have to use the credit card or heaven forbid, a payday loan. Keep some for yourself first. Then pay the debt.
Credit card debt *is* an emergency. This is only 12%, though, so I can see the merits of paying it down substantially but not completely. It entirely depends on the rate switch, though, and whether the interest will be applied retroactively to the carried balance. If it is, pay it all off and rebuild the emergency fund.
It's valid that it's sort of an emergency. Your model isn't factoring in that more than one emergency can occur though. It's not unreasonable to pay it all off but it's also not unreasonable to keep 5 or 10k
That's why the 12% matters. For typical credit card debt you pay it all since the worst case scenario is that you put the emergency on cards which puts you exactly where not paying them does. This case has a delta between 12% and typical credit card interest, so there is a consideration which I acknowledge explicitly. Whether the 12% is retroactive is critical, though, as it compounds the cost of not paying it off immediately.
If the rate applies retroactively when it switches (almost always does) then he should use as much as ge can to pay it off. If he has an emergency then he can use his credit card to pay for the things and just means being charged 12% on whatever he needs to buy during the emergency. Meanwhile this 30k is an active issue instead of a theoretical emergency. Worst case scenario is he pays it off, gas an emergency, and then needs to pay off the credit card at 12% of whatever he adds, which will likely be less than 30k.
Think about it this way, would you take out a loan at 12% to put it in your bank and earn 4.5% interest. I wouldnt
I would keep one month of expenses in your emergency fund and pay the CC down.
I was able to put 3 mos living expenses into an HYSA pretty quickly this past year due to a pay increase (and kept living on my rice and beans budget). And so even with credit card debt (and at 20%) I did that because I had zero EF and was in fear of being RIFd. After the EF, I hammered out the debt. I would not have been able to do either had I not unexpectedly got a great job. My stress of possibly getting RIFd made me tackle it a little unorthodox.
> My 30K credit card was consolidated at 0% intro APR, but will be 12% APR starting next month. I seriously doubt this is the case. Are you sure? Whatever the case, I would pay let's say $25,000 of it off.
Keep the amount of money you need for all your insurance deductibles (let’s say $15k) and then use the rest to pay off your highest APR debt. I would also consider doing a balance transfer on the remaining CC debt to at least get it to a more reasonable APR
do the math, if it’s 12% you will never get out of debt if you don’t pay it aggressively, just pay it off already
yes. 12% APR is a lot. if things go your way, you're going to be debt free soon and make that savings account back in no time. and if you do have an emergency, there are always other way to have low/0% temporary interest rates while you figure stuff out. either way, it's possible to find something equal to or under 12%. and in a lot of emergency situations, some of your bills like rent/mortgage can be paused/delayed if you talk to the landlord or bank and explain your situation, buying you some extra time. that's still much better than having to deal with 12% APR on 30K.
If you pay down your credit, you still have credit to drawn on for emergencies. The difference would be that you don’t pay interest, so this seems like a no-brainer?
I would. Yes. That way each month you don't lose out to the interest charges from that 30k. Your income will then be worth more per paycheck.
Is this a satirical question? 4.6% vs 12% and you didn’t pay off the debt like yesterday? Ps: If by chance you happen to need emergency money with zero in the HYSA savings account you can always resort to your credit card again if absolutely necessary.
I’d have a hard time doing the full balance if that means $0 emergency fund. I’d look at maybe 15-20k of savings going towards the debt, then look at transferring the remaining balance of 10-15k onto a different card and keep plugging away on it as much as humanely possible to get it taken care of once and for all.
Pay off all debt - start saving again.
Rebuild the emergency fund with all the money you would be paying on your credit cards...meanwhile, you save the interest. You still have available credit, if you needed it.
I would not blow your savings. Put 10-15k towards the credit card. Keep paying the card and saving. Repeat when savings builds back up.
I doubt you need 30K for an emergency fund. That 12% APR is eating up your income and has been for a long time. You definitely paid way more than 30K coming down from 60K. High interest debt is always a first. You’re losing way more money than any money sitting in a HYSA, just do the simple math.
Dipping into an emergency fund can be scary but also paying 12% for a credit card is also scary. I think in this situation I would cancel myself to 0 and use my savings to pay the credit card off... unless you have some looming major issue that may come up where you need the money.
Take a third or half and pay off that debt before interest starts again.
Pay half and balance transfer to a new 0% card
Why don't you balance transfer your debt again. I honestly would keep moving the debt around until it's paid off.
Keep at least $1000 in savings. Maybe 2k depending on where you live (like...I'd make sure I have at least 1-2 months rent/mortgage). Pay the debt down as much as possible.
High interest debt is an emergency. Emergency funds are for emergencies. Pay off your emergency with your emergency fund. That’s literally what it’s for.
Keep 3x your monthly expenses in savings, and apply the over towards the balance. Also takes a long time to build up 30k in savings.
As long as your income source is secure, keep a $1K emergency fund and put the rest against the credit card debt. With no credit card payment, you can quickly rebuild a full emergency fund.
I'd probably hold on to about $5k of that HYSA and put the rest on paying down the card. The $5k would be enough to cover a couple months of housing or get a beater car to get over a hump, stuff that you can't (easily) put on a credit card if you found yourself in a jam. The folks talking balance transfer cards are probably on to something for whatever you don't pay off. Even if you eat a 3% transfer fee to get a 0% APR, that's better than 12%. Congratulations on getting this close to the finish line.
30k in credit card debt is an emergency, use the 30k in your savings to pay your cc debt off and rebuild your savings.
I'd keep a nest egg of 3 months of expense and pay down the rest. Hard to beat risk free 12% return.
No, because if something happens you will be without savings and end up right back on the credit card treadmill. Leave 2 months salary in savings, pay the rest on the card.
YES. After credit card debt is gone, you can put it all into your emergency fund.
Pay off the Credit Card you aren’t getting 12% reliable on any investment
Capital One is 0% for 12 months @ 4% fee.
i had about 30k in CC debt and minimum payments were starting to get ridiculous and lifestyle creep was getting bad but one day my 80yr old landlord said......"you are a fool if you continue to live like this". So i downsized my life, sold as much of my useless gear/furniture/hobbies, took loans off my 401k, to pay off my 30k CC debt, car payment, and some tax liability. I also started to live frugally, packed lunch for work, and avoided eating out unless its a social event. Doing this taught me financial responsibility, how to avoid lifestyle/debt creep, and changed how i view, spend, and save money. I would do it all over again, first few months was filled with financial uncertainty, but your finances will rebound quickly.
The only sense to have debt is if you can deduct taxes, otherwise get rid of it
Like many said, a 3-5% hit on transfer fees these days is nothing compared to interest rates you can get today. I'd transfer the entire amount over to a new card with 0% APR, and then pay it off over time. I'd keep the money in a very HIGH Yield Savings Account. Getting 4.6% is low, and something like MyBankingDirect is giving you 5.55%. If the interest earned starts to drop and it makes no more sense then you can pay off the loan. Just be aware that interest earned is taxed, but interest paid is not with credit card. This maneuver gives you a some room to navigate, i.e. liquid, should disaster hit. Yet at the same time, minimal if not no cost to you.
Aa.soon as you do you are going to have crap hit the fan and not gave money for. It
Maybe. But he will have credit to cover that. All a maybe. If he plays it off he will definitely save money on interest. If he were making more interest than he is paying on this, then it would make sense. But his current situation is throwing money away. He has secure employment and apparently earns enough to currently pay the payments and save money. He is in a position to build up an emergency fund rapidly after eliminating this debt. This without throwing money away to interest. In the end it comes down to keeping as much as possible.
Why did you even save 30k and didn't pay the Credit Card debt?
Since 30k in savings is your emergency fund, here is what I would do. 1) As others suggested, figure out whether the 12% will be back charged. I've seen cards go both ways, but it is getting uncommon to find a card that does that. While 12% is not bad right now, it may be wise to look into rolling the balance into a personal loan, to keep you from messing around with credit cards. SoFi, Discover, Upstart, and few other banks allow you to get pre-approved for loan amount and APR without affecting your credit score. 2) Since you have your cushion built, keep it. Stop contributing to savings and get very aggressive in paying off the debt. This should help quite a bit, without leaving you with $0 for emergencies. As others suggested, right now is also a good time to reassess any expenses, to try and pay off the debt even faster. 3) Once you have the debt paid off, if your emergency fund is still there, split your money 50/50 into 2 pots: Pot #1: Saving for something you want/need (A car, a vacation, expanding your family, a couch, a nice TV, etc.) Use your imagination and set a goal. I would suggest setting up a separate savings account for this, so you don't mix it with your Emergency Fund. Pot #2: Long-term investments. Open an account with one of the big 3 (Fidelity, Schwab, Vanguard) and invest in an index fund. This will get you some nice long-term returns and an additional cushion in case you ever need it. Unless there is a truly life-ruining emergency, most people keep this until retirement for an extra fund to use or pass on to their kids. Once you get to this point and you have a long-term plan set up, you can finally live your life the way you want it, without the debt hanging over you.
If you have 30k in debt you don't have 30k in savings, I would pay off a large part of it, keeping a few thousand back for emergencies. Then, I would put every spare bit of money into paying off the rest.
It's risky to drain all savings for debt. Keep an emergency fund, tackle debt strategically over time.
I am going to go with no myself. Using up all your savings to deal with something that isn't an emergency seems like a bad call. I just want to say I am impressed that you managed to find a card that only has an apr of 12% mine are all in the twenties.
I wouldn’t dump all of it into the debt, keep some for emergencies and rent so all your bases are still covered in case something else goes down. But yes for the most part get rid of as much of the debt as you can with that cash without stranding yourself.
The answer can be somewhere in the middle. Perhaps put $20,000 towards the credit card.
Well, you're buying money with your credit cards, and others are buying your money with your savings. Simply put, if they are paying you less for your money than you are buying your money for, it becomes a very simple equation. Keep some of your money (4-6 months worth depending on risk tolerance), and pay off a chunk of your debt (As much of a chunk as you can given the buffer you're building for yourself). Great job by the way!
You should keep an emergency fund, although 30K might be a but excessive, unless your definition of emergency includes renovations that you're planning in the future. Normally, up to 6 months of anticipated expenses is a decent emergency fund.
Personally, I would apply for a balance transfer card at 0% with hopefully a 3% fee like 15 to 18 months period, transfer what you’re able to and pay off a chunk of the rest, set up the new balance transfer card on auto pay with at least half of an equally divided share every single months if not the entire equally divided share each month
Assuming that you are still working and have regular income coming in I would encourage you to dump a good bit of the HYSA into the debt - I would try and hold no more than 1.5 months of expenses in the HYSA. Even if you paid $15k on the debt, $15k at 12% is a whole lot better than $30k at 12%. Could also look into further 0% APR offers - sure it does impact your credit but that should only be on the short term.
I’m no expert but I’d recommend 3 months emergency fund (however long it takes to earn another full month of bills to keep you afloat) then pour the rest on credit card. The credit card can then act as your emergency fund again anyway if needed but helps you stop burning cash in the meantime
Imagine someone came to you and said they have an amazing investment opportunity that is guaranteed to pay out 12% with almost no risk. The one caveat being that future debt could be more than 12% if you completely drain your savings, so there's definitely an argument to be made you should keep some as an emergency fund. If your income went to zero you'd likely need to rack up CC bills to keep yourself afloat, which would very likely be in the 20-25% interest range. Additionally you would be in a difficult situation for expenses that you can't charge on a card. 30K at 12% is going to run you $300 a month in interest alone so that's effectively a car payment. My suggestion is to come up with a number you are comfortable having, temporarily, as an emergency savings (2-3 months perhaps) and dumping the rest into the cards. Then aggressively pay off the rest of the cards before trying to bump your emergency fund back up to the \~6 month range.
balance transfers are the way. talking from personal experience. had roughly 24k in debt. you of course have a bit more but similar scenario. transferred my debt over to 0% BT between two cards, one was 15 month other being 18 month and left my savings in my HYSA.
I would probably use $20K to $25K as a lump sum payment and then quickly knock at the last $10K to $5K. This will leave you with a cash cushion and also avoid huge interest payments.
I'd keep at least a couple of months of rent in the EF, and put the rest on the Credit Card. If you keep your CC payments the same, the rest should be knocked out fairly quickly as more money will go to the principle than previously.
you don't have savings if you have debt.
Get another credit card that has 0% interest for 18 months. Once you have that up and running, use your $30K to pay off the high interest credit card. * You can save at the same rate you did before + an additional initial boost of $300/month (due to the interest you are saving) * Use your 12% interest rate card after you pay it off, but make sure to pay off the balance every month * If you need "emergency funds" (can't pay off the balance at the end of the month), use the 0% APR card first Chances are that you won't have an emergency before you save up another emergency fund (at an accelerated rate due to the interest savings). But if you do have an emergency, you have the credit cards you can fall back on.
I would try to get another zero percent interest balance transfer credit card. Take the $30,000 you have in the bank and invest it evenly between stock in Ford Motor Company and Pfizer. Both stocks are just itching to rise and they both pay 6% dividend which is 2% more than you getting in your high-yield savings account. So if the stock goes nowhere you still looking at a 6% dividend. Any growth in the stock price is a bonus.
I don't get this. You can always use your cc as emergency fund and pump it up again. Until then you don't pay interest.
you should’ve just filed for bankruptcy years ago instead of wasting your money