[USER]

I have $15k set aside for emergencies and $14k in credit card balances. My 401k contributions are only about a third of the recommended amount.

My employment is stable. I’m determined to stop relying on credit cards, but I’m concerned I might fall back into old habits.

Should I use my savings to eliminate the debt and make a clean start?

[Rocky]

How often do you have an emergency? Sounds like you’ll most likely profit by paying off the cards and then using them ONLY as an emergency.

There aren’t very many investments returning 18% to 24% that you’re probably paying on the cards.

This of course requires you to actually stop using them.

[Lauren]

I would pay off the cards, then redirect the amount that was your payment into replenishing your emergency fund.

Then once that is done increase your retirement savings.

[Jason]

I try not to use credit unless it’s a big purchase, like getting a new air conditioner, or a new roof. But in those cases.

I still try to pay them off within a few months. Most of those lines of credit, have some kind of introductory rate, so there’s no interest.

If you’ve got a 20% interest rate on $14k, I’d manhattan project that and get paid it paid off as fast possible.

Maybe try to find another card that you can balance transfer and get 0% for some period of time.

On the 401k, personally, I like contributing to a Roth first and the 401k second. Get the match, but whatever grows in the 401k will ultimately be taxed when you go to use it.

Versus the tax on the initial investment and no tax on the growth.

[Peter]

Even invested or put into a HYSA, you probably won’t generate enough interest to cover the CC interest charges.

Probably best to pay at least half of the CC off in one go, keep the other 7.5k invested in an index fund or HYSA and work hard to get the last half of the CC balance cleared.

[Ryan]

Paying off credit cards isn’t an emergency. You know you have an issue with credit cards. Nows the time to work on getting that fixed.

If you bail yourself out by using emergency you didn’t really fix the problem, more of just a band aid.

Where does that leave you? 1k in emergency fund and 0 balance on credit cards for you to run up again.

Do it the right way. Cut up those cards and make a plan on how to pay them all off in the next year or 2.

You’ll be happy you did when a real emergency comes and it will help train yourself to get off the cards.

[Maxey]

What kind of risk are you exposed to? If you only rent, I would be a lot more inclined to saying throw a lot of that emergency fund at your debt.

If you owe and have a lot of risk exposure, I would be a little bit more hesitant to do that.

[Author]

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