‘I’m torn between saving and paying off debt’: I’ve started making positive financial changes, but should I prioritize building my savings or paying off credit card debt?

Hi Money Minder,

So, here’s the deal. I’ve been struggling financially for a while now, barely making ends meet. But recently, I made some changes to my lifestyle and managed to save a decent chunk of change in a high yield savings account (4.6% APY). I’m also chipping away at my maxed out credit cards, making minimum payments on all except the one with the highest interest, where I add an extra $50 each month. It’s not a lot, but it’s all I can manage right now. And hey, at least I’ve stopped using those cards.

I like having that safety net in my savings (had to tap into it a couple of times since my financial glow-up), but I’m torn. Should I use my savings to pay off my credit card debt completely or keep a buffer and throw the rest at my debt? The interest on my cards is draining my funds, but then again, taking money out of my savings means missing out on that sweet, sweet HYSA interest. What’s a money-conscious person to do?

Thanks for any advice you can offer. You’re my go-to money guru!

Cheers,

Financially Flustered Fran

Response from THE MONEY MINDER:

Hello There,

Congratulations on making the decision to take control of your finances and start making positive changes! It’s great to hear that you’ve been able to save a few hundred dollars in a High yield savings account and are actively working on paying off your credit card debt. Your progress is commendable, and you should be proud of how far you’ve come.

In terms of whether to use your savings to pay off your credit cards or keep a buffer and use the rest towards the debt, the best approach would be a combination of both. Since you’ve been able to save a decent amount in your High yield savings account, it’s wise to maintain a small emergency fund as a buffer for unexpected expenses. This will help you avoid dipping into your credit cards in case of emergencies, preventing further debt accumulation.

As for the debt repayment strategy, continuing to pay off the minimum on all your cards while targeting the one with the highest interest, as you’ve been doing, is a sound strategy. However, if you can afford to increase the extra amount you put towards the high-interest card, it will help you save on interest in the long run. While the interest you earn in your High yield savings account is beneficial, the interest rate on credit cards is typically much higher, making it financially beneficial to prioritize debt repayment.

Remember, progress is progress, no matter how small the steps may seem. Keep up the good work, stay committed to your financial goals, and you will continue to see improvements in your financial situation.

Best of luck on your journey to financial stability!

Farewell from THE MONEY MINDER.