Should we cut into savings to pay off our credit card?

by Erika Torres

I’m not sure I’ve shared this little secret with you, but Eric and I had the majority of our credit card debt on one card–which has a 0% special interest rate. We moved over two balances from two different cards back in April and May and qualified for this special interest rate, until December 2010 for one balance, and April 2011 for the other balance.Β  We did have to pay an additional 3% of the balance, but that was much better than paying 10% interest every month.

This special 0% interest rate is what has allowed us to sock away money into our savings while still paying off big chunks of money on this credit card. The other credit card we use is paid off in full every month and is used to earn points for gift certificates.

Anyway–the first balance on the 0% card was due Dec. 1, 2010 and then we would start paying interest. The balance we transferred in May wasn’t due until April 2011. So what did we do? We paid off the Dec. 1 balance which left us with $1499 on the card, which we assumed would be due by April 2011 (before we would start paying interest).

But what do the mean nasty credit card companies do? They pay off the April 2011 balance first, (even though that balance was transferred SECOND) which means the first balance transfer we made is now due Dec. 14 or we’ll start paying interest on it.

I called and argued my case, but that’s just the way these things go. So we had a choice–we could pay interest on the card and stick with our plan of paying off credit cards by April 1 OR we could take the money out of our savings and be credit card debt free and just start putting a ton of money toward savings rather than interest.

What do YOU think we did?

Yup, as of today, our savings account is now at about $750–way below the $2,000 minimum I like to keep in there. But what this does mean, is that by Jan. 1, 2011, we will be credit card debt FREE (still waiting on that $1500 freelance check!) and we can work on pumping up our savings account until August when Eric will go into the fire academy full-time and we’ll be living off of my paycheck. Doesn’t seem so shabby now after all, right?

It almost makes me think we should have done this sooner! Although granted we didn’t have all this money in savings six months ago. A savings account is great for all those unexpected “surprises” that pop up, such as car repairs, vet bills, etc. I think we’re still safe with $750, but I always like to keep it padded just in case.

Let’s hope this plan sticks and no new surprises come our way…

What do you think of our plan? Did we make the right decision? Any recommendations?


Credit Scores and Mortgages Go Together like a Wink and a Smile | Newlyweds on a Budget March 3, 2014 - 2:16 pm

[…] as someone who is less of a risk. They are in a way rewarding you with a low interest rate. If your credit score is on the lower side, they see you as someone who may not make all payments on time and therefore […]

Laura Lewis March 18, 2011 - 4:30 pm

OMG Just realized I haven’t been following your blog since you moved… this is amazing and I look forward to catching up! πŸ™‚

City Girl December 19, 2010 - 8:21 pm

Given how little interest a savings account garners and how much interest credit cards charge, you definitely made the right decision! You’ll tackle the $2000 cushion in 2011! xoxo

Lindsay December 10, 2010 - 12:47 pm

My hubby and I are on the same “almost debt free” train you are. I think you did the right thing. Congrats! Credit card debt can be soooo overwhelming. I plan on blogging a little celebratory post when we’re debt free, so I hope to see something similar for you guys! Best of luck!

Kelly December 8, 2010 - 6:40 pm

That’s what we would have done to not pay interest. I definitely am like you, I would have pleaded my case (until my ears turned blue). That was pretty shady of them to do that to you guys. I REALLY am jealous you might be debt free soon though. My husband still has tens of thousands of dollars in school debt (we’re talking maybe in the 60-80 range).

Mbezates December 7, 2010 - 9:26 pm

You absolutely did the right thing. It is better to pay down debt that will accrue interest than give the credit card companies any more of your hard earned $$. Once you pay off your debt, you can focus on paying yourself and building up your savings!

Tiffany December 7, 2010 - 8:25 pm

Hi Erika! First off, nasty stupid credit card company! What jerks! Second of all, great decision on your part! I bet you feel so light and free now. You’re going to build that savings account back up in no time. Congrats!

Keenie Beanie December 7, 2010 - 12:19 pm

I think you made the right decision – both waiting this long to do it while the debt was interest free, and then going ahead and paying it all off.

There’s something about having a credit card balance paid-in-full which is a really useful motivator for keeping it that way. And $700 is a nice little cushion against emergencies which you’ll really build on now that you don’t have debt to pay down.

Congrats on getting debt free!!!!

Bronwen December 7, 2010 - 8:20 am

I’m sitting here studying for my finance final, and I can tell you that if your interest rate on the savings account was less than the interest rate on your card (which it 99.9% is), you made the right decision!

My biggest takeaway from this class: $1 today is worth more than $1 tomorrow. Put that in your pipe and smoke it!

miss mitten December 7, 2010 - 7:33 am

That’s exactly how we’ve been paying off my husband’s (well, I guess ours now!) debt. We pay double the monthly due and save until we have enough to pay off the entire thing. 3 down and 1 to go ($2,800). It’s awesome to get it all over with in one transaction…just think about how much MORE money you can save now that you don’t have a monthly credit card payment, too!

IntrigueMe December 6, 2010 - 8:11 pm

I definitely think you made the right decision. It’s good to have savings (and at least you still have $750 in savings!) but your money is being wasted paying interest so I think in the long run, your money goes further with the credit card paid off… and, what a way to celebrate the new year!!

I’m pretty stoked too because my performance bonus in January should pay off my CC, which is really the last bit of debt I have other than my Jeep.

Yaaaaay for progress!!

Ashley December 6, 2010 - 6:45 pm

Excellent choice! I made a similar move when I needed to get rid of credit card debt and some doctor’s bills.

Kelly December 6, 2010 - 6:29 pm

Sounds like it was a great decision! Being debt-free is one of the best feelings… I can’t wait until I finish paying off my card again… πŸ™‚

Teacher Girl December 6, 2010 - 2:34 pm

Amazing! I am super jealous of your debt-freeness! Definitely the right decision. Now you guys can breathe easy and just save, save.

Randa December 6, 2010 - 2:08 pm

I think you made a great decision! Since yous till have money in your savings, you’ll stay have a little left over for “surprises” but now you’ll just be squirreling away for savings. Congrats on being debt free!

Tabitha December 6, 2010 - 1:36 pm

I agree 100% with your choice! I’ve been socking away 10% of every paycheck into a savings account I try to forget is there (so I’m not tempted to dip into it), but ever since it reached $2,000 I’ve been using a little bit here and there to pay down my school loans more quickly. I definitely think it’s important to have a good chunk of savings set aside for emergencies and big-ticket items, but in your situation, with the frustration of adding interest if you didn’t pay it right away, I think you made the best decision! πŸ™‚

Jolene December 6, 2010 - 11:58 am

Definitely the right decision!! Hard to see the savings go down, but no credit card bill will be huge. And that means you can save for Vegas too πŸ˜‰

Jenn December 6, 2010 - 11:46 am

I think you made the right choice! Congrats on almost being done with the credit cards!

Jennifer December 6, 2010 - 11:38 am

I would have made the same decision! How freeing does it feel to be credit card debt free! And now you can really stash away money in savings without that payment!


brandt @ New House on the Blog December 6, 2010 - 11:04 am

I’m very happy you did it. That debt is now GONE, OUT OF YOUR LIFE. It might be a bit lean, but at least you know that all the money you’re making is YOURS.

Big thumbs up! Do we get a nice happy celebration post when your budget pie chart shows debt going to $0.00?

WILL THERE BE CAKE!!?!?!?!?!?!?! i love cake……


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