Author Topic: Tap emergency savings to pay credit card?  (Read 5025 times)

Doomspark

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Tap emergency savings to pay credit card?
« on: July 16, 2014, 06:03:59 AM »
Currently have $6265.26 balance on credit card at 10.99% interest, and $4200.00 (roughly) in our savings account.  The savings account is our emergency fund and earns a negligible amount of interest.

I send the credit card $300.00 every two weeks out of my paycheck, plus an additional $200 at the end of each month from my wife's paycheck.

Does it make sense to tap our emergency savings to pay off the credit card sooner?  On the one hand, I dislike having no safety net. On the other hand, getting the $800 / month monkey off my back would be a god-send.

purplepants

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Re: Tap emergency savings to pay credit card?
« Reply #1 on: July 16, 2014, 06:08:47 AM »
I would.  You're making what, 0.25% interest on the savings account and paying 10.99% interest on the card? 

I would drain the savings account down to the bare minimum that will let you sleep at night.  If a bigger emergency comes up, you can use the card to cover it.

Once the credit card debt is gone, you can start building that cash safety net again.

Neustache

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Re: Tap emergency savings to pay credit card?
« Reply #2 on: July 16, 2014, 06:09:17 AM »
I'd drop your EF down to $1000 and pay $3200 on the card, if you aren't comfortable with the idea of using the CC as your emergency fund.  Then  you'll have it paid for in less than 4 months. 

BFGirl

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Re: Tap emergency savings to pay credit card?
« Reply #3 on: July 16, 2014, 06:44:43 AM »
I agree. Pay it off and have your credit card to use for emergencies until you can build your emergency fund back up.

JCfire

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Re: Tap emergency savings to pay credit card?
« Reply #4 on: July 16, 2014, 06:50:32 AM »
Currently have $6265.26 balance on credit card at 10.99% interest, and $4200.00 (roughly) in our savings account.  The savings account is our emergency fund and earns a negligible amount of interest.

I send the credit card $300.00 every two weeks out of my paycheck, plus an additional $200 at the end of each month from my wife's paycheck.

Does it make sense to tap our emergency savings to pay off the credit card sooner?  On the one hand, I dislike having no safety net. On the other hand, getting the $800 / month monkey off my back would be a god-send.

YES!  This is a no-brainer.  Pay it down ASAP with any money you can spare while being sure to avoid the risk of overdrafts.

What is your emergency fund intended to protect against?  Presumably the worst-case scenario that it protects you from is something like a sudden $4200 medical expense or critical home repair or similar.  Those are things that, if they happen the day after you pay down that CC balance, you could put on the credit card and be no worse off than if you just spent your emergency fund on them. 

NumberCruncher

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Re: Tap emergency savings to pay credit card?
« Reply #5 on: July 16, 2014, 06:55:48 AM »
I agree with the other posters *IF* you are positive the credit card debt won't run up again.

Where did the credit card debt come from in the first place? If you have concerns about this, think about putting your card(s) on ice - if there's an emergency, it's still available, but you'll think twice before doing any unnecessary spending.

guitar_stitch

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Re: Tap emergency savings to pay credit card?
« Reply #6 on: July 16, 2014, 07:26:08 AM »
"Hair on Fire"

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matchewed

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Re: Tap emergency savings to pay credit card?
« Reply #7 on: July 16, 2014, 07:33:17 AM »
What is the risk of you having an emergency while you're emergency fund-less. Do you have people to support? A secure job? Health issues? Ill-relatives? I'd agree with leaving $1k in the emergency fund and tossing everything else at the debt. Also look at your expenses and see where you can free up cash flow. I'd rather put my lifestyle in a pinch than have to lean too hard on a flimsy emergency fund.

Mutton Chop

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Re: Tap emergency savings to pay credit card?
« Reply #8 on: July 16, 2014, 07:39:14 AM »
I'd leave $1,000 in the EF.  You have to weigh your personal behavior patterns, and consider what the likelihood is of falling into the routine of using the credit card again.

We started paying down debt and wiped out our savings.  Now we have $1,000 in the EF.  Just the thought of swiping a credit card makes me sick to my stomach, so that was enough to setup the EF. 

My math may be wrong here, but by keeping the $1,000 extra on your CC and having the EF will cost you about $8-$10 per month in interest.  It depends on what your risk tolerance is!

Doomspark

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Re: Tap emergency savings to pay credit card?
« Reply #9 on: July 16, 2014, 07:45:36 AM »
The credit card debt is the remains of a $20,000 medical bill acquired in early 2013.  Once it's cleared, I intend to keep it that way.  We might use it once a month for gas, just to keep BoA from closing it for inactivity.

frugaliknowit

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Re: Tap emergency savings to pay credit card?
« Reply #10 on: July 16, 2014, 07:57:09 AM »
Yes, I would bury it, even though it presents some level of risk.

daverobev

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Re: Tap emergency savings to pay credit card?
« Reply #11 on: July 16, 2014, 09:42:15 AM »
Yes, pay it off.

Alternatively/also, get a balance transfer, 0% card, if your credit is ok and you can handle it.

davisgang90

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Re: Tap emergency savings to pay credit card?
« Reply #12 on: July 16, 2014, 09:45:20 AM »
A guaranteed 10% return on your investment!?  Do it!

Rebecca Stapler

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Re: Tap emergency savings to pay credit card?
« Reply #13 on: July 16, 2014, 09:54:41 AM »
Kill that cc debt!

If you really want cash in the bank for emergencies, keep about $1,000 in there. But there are very few "emergencies" you can't pay with a cc (paying your rent/mortgage will need to be in cash, but you could put other expenses on your cc to save up the $$ for your rent/mortgage payment). Do you have a home with equity? You could also tap a HELOC in an emergency -- that way, you really wouldn't tap it unless it was a true emergency.

horsepoor

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Re: Tap emergency savings to pay credit card?
« Reply #14 on: July 16, 2014, 10:22:19 AM »
Yes, pay it off.

Alternatively/also, get a balance transfer, 0% card, if your credit is ok and you can handle it.

I think this is a good approach.

Maybe pay $2500 or so out of your EF, then transfer the rest if you can find a low or no balance transfer offer with 0% intro rate (got one of these offers from Chase last year).  You can then spread the payments out over the promo rate period, while you re-pad your EF simultaneously.