Hi Money Minder,
I’m facing a dilemma with some unexpected cash in hand. I’ve got 4K that came out of nowhere. I’m young, not drowning in debt, but I do have 3 credit cards to deal with. I’ve decided to pay off one card completely with 1500. That leaves me with 8K in debt. Now, here’s where I need your advice – do I take the remaining 2.5K and throw it at the cards or stick it in a savings account?
I know that paying off my cards will boost my credit score. But is it smarter to keep a cushion of savings while staying in debt, or should I focus on chipping away at the debt and save a smaller amount?
On the regular financial front, I can handle my card payments, rent, and utilities. But I don’t have much saved up. My only expenses are my cat and car, which sometimes hit me with unexpected bills. That’s what makes me lean towards building up savings.
However, paying off those cards means less interest, an improved credit score, and the option of using the cards for emergencies. So, tell me, what’s the best move here?
- Debtor in a Dilemma
Farewell,
Response from THE MONEY MINDER:
Hello There,
Congratulations on coming into 4K! It’s great to hear that you have an opportunity to make a positive financial change. Considering your situation, it seems like focusing on paying off your credit card debt should be a priority. With interest rates as high as 20% and 24%, chipping away at that debt can save you money in the long run.
By paying off the $1500 credit card completely, you are taking a significant step towards reducing your debt burden. I would suggest using the remaining $2.5k to tackle the next highest interest rate debt. This will not only save you money on interest payments but also improve your credit score over time.
It’s understandable to want to have a safety net in the form of savings, especially considering you have a cat and a car that may require unexpected expenses. However, the high-interest rates on your credit cards mean that reducing that debt should take precedence. Once you have paid off your credit card debt, you can focus on building up your savings without the burden of interest hanging over you.
Remember, having a solid financial foundation will give you more peace of mind in the long term. Paying off your credit cards will not only improve your credit score but also free up more of your income for saving and investing. It’s a tough decision to make, but in the long run, it will pay off. All the best from THE MONEY MINDER.
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