Savings are a great thing to have, but if you are in credit card debt, should you tap your savings to pay off your debt? In most cases, the answer is a resounding “yes.” Although you may want to see your savings grow larger and larger, paying down your debts first and then attacking your savings account with more fervor makes sense.
Most credit cards charge double digits for interest while most savings earn low one-digit interest and take a tax hit. You’ll save more by paying off that credit card than you’ll earn on the savings. So it makes more financial sense to pay off that credit card.
Keep in mind, however, that you should never use all your savings to pay off a credit card debt, car loan, or other debts. Make sure you have en emergency fund in place. If you use up all your savings and emergency fund to pay off your debts and then land right in another financial emergency (a sick pet, and unexpected medical bill) you’ll land right back in debt again.
Additionally, if you have high interest debt like credit cards, it’s important to prioritize paying them off as soon as possible, as the interest charges can quickly add up and make it even harder to get out of debt. Once your high interest debt is paid off, you can redirect the money you were using to make those payments towards rebuilding your savings.
In summary, while it can be tempting to let your savings grow untouched, using them to pay off high interest debt like credit cards can make a lot of financial sense. Just make sure to keep an emergency fund in place to avoid falling back into debt in case of unexpected expenses.