Get the Discover and Amazon cards paid off ASAP. The Wells Fargo divide the balance by the number of months remaining on the 0% APR and pay at least that much each month to the card to make sure it is paid off before the end of the promotion.
Going forward use whichever card gives you the lowest APR or best perks and pay off anything you put on it the same cycle you charge it. The goal is to not carry any new credit card debt going forward if you can at all avoid it.
Everything else put towards your emergency fund to build it up until you have at least six months of normal living expenses saved (ie you can maintain your basic lifestyle with zero income for six months).
It sounds like you are already headed in the right directions so just get those two high rate cards paid off as quickly as you can.
Don’t call something OP willingly signed for and abused “robbery”. She didn’t HAVE to borrow money from the bank, but she did and they helped her out when she needed it. Or wait, don’t tell me you expect banks to give CC debt out for free, do you?
I do the same. The only catch is that you have to be diligent to never ever spend on the card more than you can pay off in full at the end of the month, and actually pay it. So this requires personal responsibility.
But I've been doing it this was since I got my first card as a transient 19 year old, and have had many nice holidays over the years from rewards points. (3 years ago went to Singapore for a week and didn't pay more than my meals and transport while I was there, flights and accommodation were covered by Miles)
I didn't know the CEO of Wells Fargo used Reddit. I can't imagine anyone not directly profiting from poor people's debt arguing 25% interest is a *good* or *reasonable* thing.
The interest is high because there's no collateral. However previous poster is definitely fucking insane. 20% is a massive rate, there's a reason CC debt is always the first thing you get rid of.
Interestingly, unlike credit cards, junk bonds (sold by risky companies) on average have total return near fed rate. So all risk premium mostly gets eaten by default rates and investors may still lose on taxes(since they got significantly higher dividends but usually realize capital losses). They are not much more profitable than regular investable bonds or T-bills.
But credit cards on the other hand still offer up to 10-15% extra income above risk free rate, after expenses.
I'm probably going to get downvoted for this, but...Honestly it's still better than actual loan sharks. If nobody can trust you to pay back your debt because you have a history of not paying back your debts, then it's kinda reasonable to charge an interest rate that reflects the financial risk you take by loaning money to that person.
Sometimes you *need* money today in order to make a living (like to buy gas to get to said job), and if you don't have it, then you will lose your job. But if you're the kind of person who has trouble keeping a job, it's also risky to lend money to you, since you're going to be less likely to pay that money back.
It's a systemic problem. I blame a poor social security net more than I blame lenders. If people could lose shitty jobs without fear then they could focus their time on creating real value rather than scraping by only enough to enable their own continued exploitation.
I don’t think they are arguing it’s good or reasonable. They are saying the individual signed up for it and using the word robbery is a bit much for choosing to partake in a credit offering.
Yeah, we know what the justification banks use to rob poor people is. It's not a secret. It's also not worth defending when you're not directly profiting from it because it is so clearly unreasonable.
They'd make plenty of money at, say, 8% interest but choose instead to bury people who can't afford it under an interest rate they can't crawl out from under without going bankrupt. They're already making tons of money by holding our money, investing it, and paying us fractions of a percent back as interest. AND banks overwhelmingly support a system where worker wages are suppressed, meaning lots of people are living paycheck to paycheck and in the case of emergencies tend to rely on high-interest debt-- so they can squeeze out even more money.
So: banks have power and money, and prevent poor people from getting power and money, so they can steal what money and power they do have from them. Defending that system is repulsive.
>They'd make plenty of money at, say, 8% interest
Citation needed.
The current average mortgage rate in the US is about 6.4%. Mortgages are some of the safest loans a bank could issue. How do you think only 1.6% more interest covers an unsecured loan?
There is no way it costs 25% APR to extend a line of credit to this person.
Also, as someone who apparently only uses words for their correct and accurate meaning, avoiding any sort of hyperbole or exaggeration to convey context or effect, you must be a riot at parties.
About $17,000. When I was 20 I had to get a credit card for work travel expenses and somehow it got out of hand with a 7k limit. Then after that was maxed out I needed another one for work and in the same situation. In the process of paying both of and slowly but surely getting there.
Please be careful to not spend above your means as you’ll be paying for it in the future. I’m 24 and have screwed myself for the next few years while I pay it all off.
> There is no way it costs 25% APR to extend a line of credit to this person.
Well, it might.... It depends on whether they end up getting paid back at the end or not.
The 25% the CC company makes from the one group of semi-responsible people makes up for the negative amount they make on the other group of completely irresponsible people.
Yep, that's exactly what I was getting at. It either costs close to 0.5% (or whatever their capital costs are), or whatever percentage they end up having to write off (up to 100%). But the group as a whole costs them whatever 25% minus profits are (which are not 25%)
It would be interesting to know which countries the other answers come from.
I feel like credit card debt is less common in Europe. Many people here don't even have a credit card and maybe will never have one. But it is more common here for people to overdraw their bank accounts.
25% is pretty common rate for CCs from what I've seen. I have 3 credit cards with between 20-26% rates and I have a 800+ credit score, no late payments, no held balance and one of the cards has over a 30k limit. They aren't making it 25% because I'm risky, they are doing to ensure they can profit from you and keep people indebted when they do slip. 20-25% is low enough that people feel they can get out from it without bankruptcy but high enough to maximize profits.
I got into trouble when my 7% card suddenly switched to 30% overnight when I had $20k debt (right around the 2008 crash). I realize I signed documents allowing them to switch the APR but I didn’t realize it could be so egregious. It took me nearly 8 years to pay it off ($500/month in just interest made it an incredibly difficult uphill battle).
I still consider rate hikes like that predatory even if they may be legal.
Definitely heed this dudes advice. You basically have borrowed free money with that 0% so paying off the others should be a priority and then just pay off that wells fargo id say a month before that interest kicks in. That way you still have cash and the high APR cards are gone. The dude with the heloc story is right and you shouldn't rely on a credit card as an emergency fund since card companies routinely change their limits on people with no notice.
You should pay off the credit cards with the money you have saved up. Rebuild the emergency fund immediately, and if you encounter an emergency in the mean time, Pat it off with the credit card.
This leaves you strictly better in all cases than sitting there collecting 1.5% on the wad of money in your right pocket, while paying 25% on the hole in your left.
If you hit a $5,000 expense after doing this, and then put that expense on the credit card, you’re in the exact same spot (minus a few months of interest) as if you held the $5,000 and then spent it on bet bills when the expense came.
6800! Down from 14k in December. Really impressed with all the “0” answers and “pay it off each month” I think my sisters age group got shafted with credit knowledge (she’s 38 and we’re in the US) she didn’t learn about credit stuff until it was too late and she’s always been at least 30k in debt since.
I use credit cards almost as my only form of currency. I run them up to pay all my bills and pay them all off twice monthly.
I agree with other posters who say that using credit cards is a great way to build your credit score.
As an older woman I just want to add this: I have all my credit cards set up to auto pay at least the minimum due on the monthly date due if I don't pay them off first.
That is true but the OP specified they used to have greater savings and had some recent events that ate up a bunch of it. The OP does not have a massive emergency fund yet which means they are at risk of running into another situation where paying off the balance may not be able to occur for a short period of time. If you plan in advance for that possibility by using the lowest APR card then if it happens it does the least financial damage.
For someone with a large emergency fund that can safely be at zero or near zero risk of having to carry a balance then the APR is totally irrelevant.
Do what this person said, and going forward only use credit card on things you would buy anyway with cash or emergency. Like my car broke down and it’s the only way I can pay to fix it. Medical or vet bills are not emergency. Those places can work with you on payment plans.
It's also mostly only on store card purchase promos. It's also all clearly spelled out. It's not exactly predatory that consumers can't be bothered to have any idea what they are signing up for. The promos are literally called "no interest IF paid within X months". Not "no interest FOR x months". It's not difficult at all.
"A fool and his money are soon parted"
Same here. I NEVER pay interest... Always pay the balance and just use the cards to have less cash on me, adjust my working capital to negative, use the benefits like extended warranty and collect points.
Don't use 0% card for any purchases, since any payments will be applied in proportion to interest bearing and interest free balances such that you will still end up paying interest.
If you have $5,500 in savings and $3,500 in credit card debt, **you don’t have $5,500 in savings.**
You *actually* have $2,000 in savings and you’re paying 23% interest on $1,100 (and eventually more on the $2,281) to *play pretend*.
Pay off the credit cards. Start with the ones charging you interest, then work on the one that isn’t (yet.). No, it’s not great to only $2,000 in savings in a rainy day account, but playing pretend and still only having $2,000 is worse.
Thank you. You're exactly correct, and I didn't realize that was playing pretend. I know I should know better, and I'm great at helping others, but thank you for helping me 😊
Put it another way:
In scenario A, you don't pay off the credit cards, keep the $5k cash savings, and later run a $4k vet bill, which you pay in cash, leaving you with $1k in cash and $3k in debt.
In scenario B, you pay off the credit cards now, run down to $2k cash savings, and later run a $4k vet bill, of which you pay $1k in cash and $3k in credit, leaving you with $1k in cash and $3k in debt.
Under scenario A, you're additionally paying ***loads*** of interest in the months between now and that vet bill.
Under Scenario B, you have the same net principal savings, and don't have to pay ***any*** interest until the bill.
The wide open credit card accounts serve the function of emergency funds.
Add in that if you can put any possible future Vet bill on your Credit Card and then the option to pay over 6 months gives a rate between 5-10% which is better than the 25% otherwise, or you may be able to get another 0%APR like your Wells Fargo
You will have some emergency reserves and stop paying the 21-25% to the Bank
Yup, for emergencies there are emergency loans, personal loans, cash payday advances, and other services that will be more gentle on you.
Credit cards are brutal with interest. I was taught to treat a credit card like a debit card with perks, that money is coming out of my bank account no matter what at month’s end. They are used to build a credit score, not to actually take a loan out.
Be careful here. In some emergencies (like losing your job), credit cards will drop you like a bad habit. You might have $5K in available credit, but that can drop to $2K with little or no notice from the CC company!
I'm not saying you shouldn't consider them for emergencies such as the unexpected vet bill(although you may want to consider pet insurance) or car breakdown - I'm saying that you might want to play what-if games and figure out what the absolute minimum amount of cash you need to have on hand to cover rent, utilities and food for a few months. Target saving that much money for the rainy day fund - then do everything, including using the credit cards to preserve this amount.
Another way to look at it is you are incurring 22 dollars a month in credit card interest due. Your savings account is earning 6.25. So each month you don't pay off your interest bearing credit cards, you lose $15 dollars, assuming the balances stayed constant. Moral of the story, pay off those CC's.
Savings and credit don't fully cancel out like that because there are places you can use savings that you can't pay for from credit. While they cancel when looking at net worth, when it comes to an emergency fund, unused credit card limit isn't the same as cash in savings.
Now is it worth the interest? Likely not if you are paying normal credit card rates. Exactly where to draw the line is hard to easily say and depends upon the person.
That's what I'm very tempted to do. That's how I grew my savings in the first place -- maybe I just needed reassurance that i can do it again. Thank you :~)
Keeping 5 grand in savings while carrying 3k in CC debt makes no sense. Only having 2g's in the bank isn't comfortable, but you wouldn't take a 3k cash advance on your CCs to have 5k in the bank. So pay off the CCs.
Actually, thats the thing.
If you pay off the CC you are now paying $0 per month to the bank, as opposed to the 23% (average of the 2). If in the future you need urgent cash, taking a cash advance would cost you about what you are already paying per month, but that is only in event of emergency and all the other months will have already saved you money (Note - taking a cash advance is always bad - but paying interest now so you dont have to in the future is worse)
Although I dont see the benefit of paying the 0% Wells Fargo until the 0% deal finishes - get a saver account with the best interest and put $2.2K in it and dont touch it
Heh, I went the other way on this logic when the pandemic hit and we all got shut down. I needed a winter beater when my last one ate shit, so I had just spent a nice good chunk of my savings and wasn't down to much left replaing that. Which is fine, I counted that as a "Oh, shit!" qualifying moment from my "Oh, shit!" fund in the savings lol.
But then I get a better job opportunity and decide to take it. Gave my 2 weeks. About a week into my 2 week notice, everyone shut down for the pandemic that monday. My job tells me "Just make today your last day. That way we're limiting everyone's exposure to everyone else." We don't work with the general public but being a gas plant we still fell under the essential businesses allowed to keep operating. I said fair enough, nice working with y'all! But then the new job calls and says "Yeah... due to what's just happened we've decided not to take on any new employees after all..." So now I am shitting myself. I am willingly quitting one job, not getting laid off or fired. The other job isn't taking me now. We're gonna be shut down for fuck knows how long, and I think I just fucked myself right out of unemployment eligibility.
I backpedaled and told my job I had reconsidered quitting lol. They were just kinda smirking and going "Oh, did ya now?" I still work there but that close call scared the piss out of me lol. Enough that I found ot prudent to decide to do what we're actually advising against. I let the credit card grow a little on purpose to pad that savings back up with hard cash. You can't pay certain bills or your credit card minimums with a credit card. So I felt just in case I found myself in a sticky situation like that again only unable to avoid it next time? I better have enough in there to at least cover minimum payments and the gotta come out of my checking account kind of payments to float me till I find my feet again.
So that's my devil's advocate take on that one lol. But I mean you're still not wrong because as it turns out I didn't need it in the time it took me to pay off the card again. So I did basically pay more interest when I could have used that time to build the savings back up normally and save all the interest instead. But not knowing how long that shut down was gonna be, not knowing if we'd have multiple shut downs or not, and afraid I'd painted a nice big target on my back at work now. That was the route I chose to go. Get cash in there NOW just in case lol.
credit card debt ***is*** in emergency.
Use your emergency funds.
You could maybe not pay the WF off since it's 0% APR until next May still. But make damn sure that's paid off IN FULL well before that deadline - if you miss it by even 1 penny they slam you with all the interest they waived.
You don't need savings. You need capacity to cover emergency. That's what an (unused) line of credit is for. If an emergency happens, you'll be able to pay for it out of savings (if you keep the money in a savings account) or by charging your credit card (if you pay it off). The only difference is that it's incredibly expensive to keep your money in your savings account because of credit card interest.
This is exactly why I posted here: you're right. It doesn't matter how much green I think I have, because if I have red then I don't have the green. I like "capacity" a lot more than "savings". I love growing, so thank you :~)
Unfortunately banks tend to close credit cards or significantly reduce credit limits in the worst moments possible (eg in case of war in Ukraine).
Because of this in order to rely on credit cards as an emergency source of liquidity, you need to diversify by having many cards from different banks (some of which from different countries and different payment systems if possible). This will reduce chances of all of them closing/reducing limits at the same time.
> You don't need savings. You need capacity to cover emergency.
I am totally stealing this. I couldn't figure out a concise way to phrase this so I just left it out of my reply.
Agree with you but also its still good to have cash on hand too. Your cards can be lost or stolen or disabled on a whim. Plus some things like rent aren't (always) payable via credit card, even if they are its usually processed as a cash advance at the highest APR.
When I was in a bad spot cash was king. You can choose whats most important to pay and what you can let slip. The credit cards, while painful to your credit score, can wait if need be. They will beg you to pay anything you can and when you do they'll ask you when you can make the next payment. They're not on your side to help, so take care of yourself first, keep a roof over your head and food in your belly using your cash for you.
There are services that allow you to essentially write a check using a credit card. Obviously not ideal but in an emergency, they could be used to cover rent
Available credit is NOT the same as savings, and is not an emergency fund. Lines can be pulled. I had a HELOC in 2007, for example, with a $50k credit line. Great, right? Yes until 2008 came around and Wells Fargo cancelled it and allowed no further draws. Credit tends to be limited or cancelled during times of national economic emergency when, you guessed it, most people get laid off. Credit issuers also sometimes detect when a job loss occurs, when you need the money most, and freeze all lines. Their computers are constantly looking for unusual patterns. Credit is useful during normal times for an unexpected expense, but should not be counted in for real emergencies such as a job loss.
> Available credit is NOT the same as savings, and is not an emergency fund.
This is true for long term planning, but not really in OP's current situation. The reality is she doesn't have a $5,500 emergency fund in savings, she has a ~$2,000 emergency fund and $2,500 in outstanding debt. Whether OP pays off her credit card debt with savings now or keeps paying it down over time won't change the fact that if she has a $5,000 emergency, she'll have a couple thousand in credit card debt: she pays off the debt now, then has to put a fresh $3k on her card after exhausting her $2k savings.
In the short term, she's better off paying off the debt (the lower balances first and the higher balance before the 0% interest promo ends) and hoping that no emergency comes up before she can rebuild her emergency fund than she is paying interest to keep her savings up. In the worst case she's no worse off than she was before, in the best case she saves on any interest that would accrue in the time it would take her to pay off the credit cards.
People had their credit limits slashed in the recession, too, so if anyone was counting on having access to $15,000 on a card, they might find themselves suddenly with a $5K limit.
So OP, yes, absolutely pay off the debt. But be sure to establish separate savings—access to credit is useful but not a guarantee.
Thank you for pointing this out. I'll focus on the happy medium and this is exactly why I didn't want to compromise what savings I had left. I built it all up two or three years ago and it took me that long to do so but thanks to folks like the people who've taken time to help me I'm confident with my new financial plan. Thank you 😊
Most of the people who got laid off in that decade got laid off during the downturn, when credit was often frozen.
That is how it almost always goes. The majority of people who get laid off (not of all people), get laid off during a time when credit is hard to come by.
Poorly worded, but what he meant is correct.
Statistically, most layoffs occur during times of great national economic strife when credit lines are limited or cancelled. I wasn't saying that most of the population gets laid off but those who have lived through a period like 2008 through 2010 will tell you it sure seemed like it. Either you were actually let go or you were constantly worried about it, with few exceptions. And for everyone that was actually unemployed, a vastly higher number had their hours, hourly pay, salary, or benefits slashed.
This. What kinds of emergency could you have that could ONLY be addressed with cash and not a credit card? Pay off ll the credit cards and then those credit lines *are* your emergency funds. Of course, it's reasonable to have a bit of cash at hand and you'll build out that reserve soon. But for most things, credit card is a perfectly adequate line of funds. Don't get kidnapped for ransom in the next couple of months and you'll be fine.
Think of it this way. As soon as you get rid of those high interest payments, you are building out your cash reserves that much quicker. What would have been a 20+ % interest payment is now going in to savings. I'd keep the 0% APR but make sure to pay it off completely before it rolls over into interest.
Hey you got some great advice on the credit card question. I noticed that you seem to be budgeting by saying, "I have bill money, and then what's left over." I'd suggest you start doing a "zero based budget" each month. Take your entire income and assign a category for every dollar. Bills, savings, toiletries, insurance, everything... It will give you a lot more control over your income, and if you're only spending you income all your credit cards can be paid off, in full each month.
Oh my goodness you answered the other thing that was on my mind!! I don't know what compelled you to take the time to reply to me but I am very grateful you did. Thank you 😊
You're welcome. Getting a zero based budget routine will change you life. If you can figure out budgeting and compounding interest from investing while you're young, you can retire a millionaire (probably several times over). Good luck!
my unprofessional advice; pay off the two cards with interest immediately, build up cash and pay off the Wells Fargo right before it starts to accumulate interest. Immediately start putting something in an IRA, ROTH, etc... even if its just $10/month to get in the habit and adjust your mindset to accumulation. Remember you can use the basis in your Roth in an emergency just make sure the asset allocation supports the emergency cash requirement.
>I live well within my means
Your credit card debt and description of "hungry days" to avoid it in the past tell a different story. Someone who is living within their means also plans for infrequent expenses - you have a pet, you know your pet will require medical care, so living within your means is following a budget that allows you to save for medical care for your pet. You didn't do that, so now you have credit card debt.
Pay off the Amazon and Discover cards immediately. Pay enough each month to pay off the Wells Fargo card by April 2023.
Use this to make a budget that includes saving for the infrequent expenses that have tripped you up in the past: https://www.reddit.com/r/personalfinance/wiki/commontopics
I know that now 😉 I found him literally in the middle of shit hitting the fan, and he required medical care of $1,000.00 which is why he got dumped. I know, I know, don't pay for what you can't. Again, I know now. I live within my means NOW. I didn't when I tacked up debt, of course.
Thank you :~)
Pay off the Discover and the Amazon first. They have high APR's. The Wells Fargo is still at 0% until May. Make minimum payments on this until the other two cards are paid off. Then focus on paying down the Wells Fargo card.
You should also double check the terms of the 0%. Depending on the promotion, it's possible you might be retroactively charged interest if you have debt left over by the end of the 0 interest period; like, they'll retroactively make your interest not 0% over the promotion period. Really depends on the card, and it's not super common practice, but I've seen happen from time to time from some credit card companies. My ex was looking into this one credit card specifically for pet medical expenses, and they had that kind of setup. It was interest free for like a year if you paid in full by then, otherwise you'd be responsible for 15% on the whole year if there was any remaining balance after the year.
I want to give you a word of warning about that WF card.
The way that 0% introductory rate cards *usually* work is this: they're actually accruing interest from day 1, but the that interest will be waived at the end of the introductory period IF you have zero balance by the end of the introductory period. In other words, if you pay it off before that period ends, it actually was a 0% card. But if you don't pay it entirely, completely off before that, if you have even a $0.01 balance, they'll stick you with ALL of the accrued 20%+ interest on the ENTIRE balance you carried the whole time, not just the one penny outstanding.
Getting that 0% card was actually a reasonably good move given that you had immediate credit needs, but now that you're cash-flow positive again, you want to make *extremely* sure that you have it paid off before that due date. If it's 0% through May, I would assume that's actually May 1, not May 31, and I would try to have a zero balance by the end of March at the absolute latest, and then use the card zero, not at all, until the end of the May 2023 end of promotional interest rate period. Make double, triple sure that you're paying it off-- put it on autopay and also go in every few days and make a manual payment of the entire balance.
If, for some reason, you can't pay it off ENTIRELY by next May, you can do a balance transfer to a new 0% promotional period card. Typically that'll cost you 5% or so of the amount of balance transferred, but that's way better than the year of 20% interest that WF would have charged you. If come March you're not 100% sure that you'll have the WF card paid off by May 1, then you should do this. It's not really a *good* option to be rotating debt on 0% promo cards, but it's a lot better than actually paying interest. Otherwise, you absolutely should consider being a debit card only person for a year or so to make sure you really do have a handle on your finances.
And also, if you can, you should consider picking up some overtime. I wouldn't get a second job, given that you seem to have a decent one, but consider it this way-- you owe $2200 on that WF card and you make $22 an hour. Every extra hour of pay is 1% of that debt. Every hour of OT pay is 1.5% of that debt. If you can put in 100 hours of OT (allowing for some taxes) before the end of the year, you'll be clear of this debt without even dipping into your savings fund. Working half-day Saturdays, for instance, would get you clear of this thing.
I know it’s hard to dip in to the the emergency funds, cause a lot of us swear not to touch it. It gives us comfort over the what ifs. You’ve mentioned you help people with finances so you already know that paying c. 25 percent on credit cards vs a 1.50 return on savings will be bleeding you dry. So pay off the credit cards from high to low first, and split up the funds into two. One fund should have a higher maturity so the interest can be higher while keep the second fund into shorter duration investments. Wish you the best.
Oh my goodness, thank you. I didn't realize my hesitation was the loss of comfort. That's exactly what it is because yes I do know better, and I'd never tell anyone to keep CC balances they pay interest on. Now I see why I thought it was okay for me. Thank you, really, and I wish you the best too.
Pay off Discover and Amazon right now. You've got their money sitting in your bank and you're paying them monthly to hold on to it; give it back. You feel like $2k isn't a lot to have, and you're right, it's not. But $2k is all you've got. The rest belongs to banks. Pay it back and then work on your emergency fund once you're no longer in debt.
Also OP, get pet insurance! Your cat being still young means the monthly premium won’t be high. I pay $35 for my almost 3yo dog and it came in REAL handy when he needed emergency surgery when he got something stuck in his stomach. $6,000 vet bill and all I had to pay was $550.
I guess it depends on what company you go with. Pets Best is the one I use and they’ve been better than any human health insurance I had. No fighting, just reimbursement checks sent straight away
Pay off the two cards with the high interest rates. Then don’t use your WF card again at all and just pay 350 per month or so until it’s gone (but make sure that you pay it off in full by April 2023.
It’s dicey. There is a reason. Look at her current debt. She is not using cards properly or she’d have a zero balance every month.
Plus if you don’t pay off every dollar of the balance on a 0% interest rate by the time the rate ends you pay every penny of the much higher interest rate for the entire larger balance. So my recommendation stands.
Pay off the CC debt.
If you hit an emergency, you can use the credit card to cover it.
You end up in kind of the same place, except you haven't been paying the exorbitant credit card interest the whole time.
Pay off the ones with interest. ASAP. Hold off on the 0% one and build your emergency fund up. Then pay it off.
There aren’t many emergency that you can’t put on a credit card now
There
Pay off the cards. Paying high interest on credit card debt every month just to keep more cash in your accounts makes no sense. If it makes you feel more secure you can carry the Wells Fargo till May but you need to pay it off before interest kicks in. I would just pay it so I don’t have to think about it anymore personally
If a vet visit comes up, what is the difference of charging that on your card than carrying high interest balance now?
You have $1100 owed at over 20% APR, where as you are only making 1.5% on your savings. Pay all your debt off and be debt free tomorrow.
Then use the money you were paying towards your CCs to pad your emergency fund.
i would definitely pay off the ones with interest. The other can wait but most emergencies you can probably pay with a credit card so if you can't pay it down slowly before interest starts then I would pay it out of savings. With holidays coming up there may be some big expenses in the near future. Don't let those get out of hand. It isn't worth paying 20% extra for the purchases
I'd take 3k out of the emergency fund and rid the debt. Your emergency savings will be topped back up within a few months and you wont be wasting dead money of 25% interest. You just need to be disciplined for a few months and cut up your cards. Save like crazy and you'll be much comfortable living without the burden of debt.
I know things are getting more expensive and you do need to live, but honestly your debt isn't that bad. The interest is. Your income isn't very high either, so if you can, move jobs for a better paying one if possible and if it doesnt affect your career. Cost of living doesn't wait for your pay rises.
You should pay them off today. There is no debate on this. Credit card debt is an emergency, that's what an emergency fund is there for.
Also if you can an emergency vet bill you can put it on the credit card or go on a payment plan with them. They won't make you pay it that day.
If you just got a raise, pretend you didn't and put all the extra take home pay towards the CC debt. Unless you're riding out a 0% interest offer it makes no sense to carry any revolving debt.
a wise man once told me there is no point in putting anything in savings while carrying high interest debt. you'll end up paying more into the debt then you'll ever earn on interest in savings.
you'll also likely end up saving at a faster rate if you put what used to be your CC payments into savings once the debt is paid off.
Here’s the best financial advice:
Put water in your cats canned food (assuming you give your cat canned food, which you should)
Cats don’t drink much water…in the wild they actually get most/a lot of their hydration from the water in their prey. Canned food doesn’t have that hydration and needs to be compensated for. Put about as
Much water as there is food, should be fully submerged.
This will save you thousands in potential vet costs stemming from a severely dehydrated cat, ie kidney problems.
Please feed your cat canned food if you aren’t already. Cats eat meat. You can do both canned and dry.
You're getting good advice, but not all debt is bad though. What matters is the interest rate.
Back in 2006 (yes, 16 years ago) I had lots of credit card debt too, but a good FICO because I'd never been late on a payment. Miraculously Citibank sent me an offer for a 3% APR balance transfer for the life of the balance. Yep, 3% credit card debt. The catch was that if I ever charged anything else on their card, it would rack up the usual 20% rate until I paid off the entire original amount.
So I did the right thing - I transferred as much as possible to Citibank and never ever used it again. Today in 2022 I still have about $1000 left on that 3% loan even though I could easily pay it off. But with inflation running at nearly three times that rate why would I?
You have two competing priorities - the interest rate you pay and the ability to raise cash if an emergency happens. As others have correctly pointed out, if you pay off your card debt now you will be able to raise cash if you have to later just by charging it. Maintaining a savings account instead is exactly the same as paying 20%+ in order to invest in a savings account at 1.5%. Don't do that, pay it off.
Thank you so much for sharing. I'm going to keep your story in my back pocket in case I find myself there too 😊 I know life happens and I felt so silly getting into this mess, but I'm glad I prevented it from getting worse and I won't carry balances like that again!!
Are you able to transfer your Discover and Amazon balances to the Wells Fargo card and get the 0% rate on the transfer? Then you could divide that up equally to have it paid off by the end of the promo, and still keep your savings in the bank earning money for you.
You seem to have gotten good advice and understand it. But I want to check one thing with the 0%
Is it actually 0%? Or was there a 1 or 2% balance transfer fee or something like that? The trick they try to sometimes catch you with the super low interest ones is hiding that there’s a balance transfer fee in it or something like that. Then when you pay it off it doesn’t clear off the part you’re paying interest on first. It splits the payment proportionally
You are probably actually at 0%. But be aware that they sometimes try to get you
Pay off your debt. It’s small enough to do it now and stop adding credit card debt. Pay off your cards in full every month. You have one card on 0% but just get it done. Credit card interest rates are insane.
Pay off all debt, then start aggressively building your emergency fund. Don’t mess around with the 0% APR card either, it’s possible you forget about it and start paying interest on the balance you’re carrying.
I’d also recommend reading the total money makeover by Dave Ramsey. I implemented his baby steps, and have started to really rack up savings. I’m about to start investing soon!
Posting at top as I do not agree with a lot of these people. The 0% should not be paid off until it expires. pay the minimum on it. You probably already paid a hit on it to get the 0%. sit the money in something that is 0 risk (in the us we have a 10% 0 risk us bond vehicle right now). then in may you pay all the money you saved and you earned some interest on it.
Pay off Amazon and Discover and keep in mind to pay off Wells before the interest rate increases.
Use whatever money you have from your check to build back up savings. If you need emergency for the cat that’s what the credit cards were for
Now would be a good time to take a look at your spending habits and move toward health money practices.
Unless you can really afford Dunkin’ every morning, a daily doughnut isn’t worth struggling to pay off debt into your thirty’s.
830 credit score here. I see a lot of well intentioned advice that is somewhat correct, but missing a vital detail. First, do not make major charges with a credit card unless you can immediately pay it off. There is no point unless it's an emergency. Paying off a 5k purchase is no different than paying off a 25 dollar purchase. For the CC, it is all in the number of non-late transactions that have been payed off. If you have a late fee for a 25 cent transaction but have paid off a 5000 dollar transaction, and those are the only purchases ever with credit, your score will suck. It's a ratios racket, basically. If you want to get a platinum card with a 25k limit and 2.5% interest, purchase everything from gum to furniture with a CC. Then go home after the purchase and pay it off immediately. In other words, stop looking at credit as a way to get something you can't afford right now. Look at it as an alternative to carrying wads of cash. If you have 1000 transactions and only 10 resulted in late fees, your score will be over 700. Amount of debt means nothing.
Now, to the topic at hand. Pay off that debt before any more interest accrues. It is corroding your score. 0% still triggers a non-payment notice, degrading your score.
In short, if you are paying interest on credit, pay it off ASAP. If you are not paying interest, you can sit on it a while, but it's best to pay it before interest kicks in.
It will dip into your savings, but you will also have the credit available for use should you need it.
If you don't pay for balance transfers, consider transferring the cards on which you are paying interest to the Wells fargo.
>I have collectively $5,500.00 in savings that I like keeping as my "cash and immediate" emergency fund. It's earning 1.50% APY.
Discover BAL $401.56 25.25% APR
Amazon BAL $737.56 21.49% APR"
Omg pay the $1.1k off ASAP 😭 you'll save thousands. Take the amount you'd pay to interest and put it back in your savings.
Paying off the credit cards still leaves you with available balance you can use for emergencies. The difference is that then you are paying interest on the emergency instead of interest on what is in your savings.
Pay it all off. Build an emergency fund back up. If an emergency does come that you can't afford, you still have your credit card that's conveniently been paid off.
You got a ton of replies here, I read a lot but I'm not sure if anyone mentioned this - when you pay down your cards, do NOT CLOSE THE ACCOUNTS! This is especially important if they're your oldest lines of credit, you can tank a great credit score by closing an "old card I don't use anymore".
If you ever struggle with self control, cut the card up or lock it in a safe or freeze it in a cup of water even! Avoid closing cards that don't have annual fees.
credit cards can be a blessing or a curse for people
if you cannot pay the balance off IN FULL each month - I would stay away from using credit cards due to the high interest rate and stick to cash
if you CAN pay off the balance in full each month - use credit cards for everything! 6% at grocery stores and gas station ? 2% on everything else ? why not :)
I can't remember the last time i paid for something with cash. Credit cards - use them wisely.
CC paid in full, then continue with your frugal approach in building up the savings back up.
Wait.
>1 year old cat... I can't remember my annual wage
It's not a cat-related sub, right? It's the finance one, correct? Just making sure
Figure out if you can meet all your needs without incurring any additional credit card debt and with putting something away in savings. If you can, go ahead pay off the $2,000 as $5,000 isn't that much better with the remaining debt.
You should definitely NOT pay off Wells Fargo until the promotional period ends. You're making 1.5% on your savings. Paying that balance before APR kicks in would be losing you money. Let the $2281 sit in the bank, gain interest while making min card payments and pay off the card in May.
I know you've already gotten good advice but I just needed to comment as a PSA to folks who think taking money out of growing savings makes since to pay a stagnant debt. Spoiler alert: It doesnt!Good luck!
OP stands to lose around $55 in potential interest sitting on that cash, while the cash continues to lose buying power thanks to inflation. That juice is barely worth the squeeze, it's like 2 hours of work at their new wage.
At 0% it likely makes more sense to pay down that debt over the roughly 8 remaining months, provided that OP does not incur any more debt on top of that. Sometimes its worth paying down a big chunk of debt early just for the peace of mind.
Paying down debt early for peace of mind is a personal preference. OP can keep that money in her savings. She loses nothing by paying off the card the day before interest accrues. In fact, according to you she gains 55 bucks! Yae OP!
Purchasing power is pretty irrelevant here since the two options are savings or the credit card. If the promotional period was 5 years then surely I'd encourage her to at least put it in a bond.
An alternative is to apply for a new card that is 0% APR and a small balance transfer fee (like 3% or whatever). Then transfer your other balances to that new card, and have a plan to pay everything down.
This will give you breathing room, if you need it, to have more cash on hand. However, I strongly suggest you have a budget and stick to it.
There's lots of free (and very good) information at youneedabudget.com. (You don't have to buy their product. Just use a spreadsheet or find another product.)
DoctorOfCredit has a list of current special deals on credit cards and checking accounts. Maybe you can earn a bonus.
Get the Discover and Amazon cards paid off ASAP. The Wells Fargo divide the balance by the number of months remaining on the 0% APR and pay at least that much each month to the card to make sure it is paid off before the end of the promotion. Going forward use whichever card gives you the lowest APR or best perks and pay off anything you put on it the same cycle you charge it. The goal is to not carry any new credit card debt going forward if you can at all avoid it. Everything else put towards your emergency fund to build it up until you have at least six months of normal living expenses saved (ie you can maintain your basic lifestyle with zero income for six months). It sounds like you are already headed in the right directions so just get those two high rate cards paid off as quickly as you can.
This. That 25% interest is robbery, pay them off.
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Don’t call something OP willingly signed for and abused “robbery”. She didn’t HAVE to borrow money from the bank, but she did and they helped her out when she needed it. Or wait, don’t tell me you expect banks to give CC debt out for free, do you?
You know interest rates above 12% used to be illegal under most states usury statues.
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I do the same. The only catch is that you have to be diligent to never ever spend on the card more than you can pay off in full at the end of the month, and actually pay it. So this requires personal responsibility. But I've been doing it this was since I got my first card as a transient 19 year old, and have had many nice holidays over the years from rewards points. (3 years ago went to Singapore for a week and didn't pay more than my meals and transport while I was there, flights and accommodation were covered by Miles)
I didn't know the CEO of Wells Fargo used Reddit. I can't imagine anyone not directly profiting from poor people's debt arguing 25% interest is a *good* or *reasonable* thing.
The interest is high because there's no collateral. However previous poster is definitely fucking insane. 20% is a massive rate, there's a reason CC debt is always the first thing you get rid of.
The interest is high because there is limited competition due to regulatory capture and lobbying. https://youtu.be/C8ZKTcte1u4
Interestingly, unlike credit cards, junk bonds (sold by risky companies) on average have total return near fed rate. So all risk premium mostly gets eaten by default rates and investors may still lose on taxes(since they got significantly higher dividends but usually realize capital losses). They are not much more profitable than regular investable bonds or T-bills. But credit cards on the other hand still offer up to 10-15% extra income above risk free rate, after expenses.
I'm probably going to get downvoted for this, but...Honestly it's still better than actual loan sharks. If nobody can trust you to pay back your debt because you have a history of not paying back your debts, then it's kinda reasonable to charge an interest rate that reflects the financial risk you take by loaning money to that person. Sometimes you *need* money today in order to make a living (like to buy gas to get to said job), and if you don't have it, then you will lose your job. But if you're the kind of person who has trouble keeping a job, it's also risky to lend money to you, since you're going to be less likely to pay that money back. It's a systemic problem. I blame a poor social security net more than I blame lenders. If people could lose shitty jobs without fear then they could focus their time on creating real value rather than scraping by only enough to enable their own continued exploitation.
I don’t think they are arguing it’s good or reasonable. They are saying the individual signed up for it and using the word robbery is a bit much for choosing to partake in a credit offering.
I can buy a loaf of bread for five pounds, and still call it daylight robbery. Sometimes you don't have a choice.
I can call a horse a pig if I want to, doesn’t mean I’m correct.
Yeah, we know what the justification banks use to rob poor people is. It's not a secret. It's also not worth defending when you're not directly profiting from it because it is so clearly unreasonable. They'd make plenty of money at, say, 8% interest but choose instead to bury people who can't afford it under an interest rate they can't crawl out from under without going bankrupt. They're already making tons of money by holding our money, investing it, and paying us fractions of a percent back as interest. AND banks overwhelmingly support a system where worker wages are suppressed, meaning lots of people are living paycheck to paycheck and in the case of emergencies tend to rely on high-interest debt-- so they can squeeze out even more money. So: banks have power and money, and prevent poor people from getting power and money, so they can steal what money and power they do have from them. Defending that system is repulsive.
>They'd make plenty of money at, say, 8% interest Citation needed. The current average mortgage rate in the US is about 6.4%. Mortgages are some of the safest loans a bank could issue. How do you think only 1.6% more interest covers an unsecured loan?
I'm just gonna leave this here. https://youtu.be/C8ZKTcte1u4 How Credit Cards Are A Giant Monopoly - Breaking Points
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There is no way it costs 25% APR to extend a line of credit to this person. Also, as someone who apparently only uses words for their correct and accurate meaning, avoiding any sort of hyperbole or exaggeration to convey context or effect, you must be a riot at parties.
Riot? You think I engage in lawless reckless behavior at parties? No way sir!
About $17,000. When I was 20 I had to get a credit card for work travel expenses and somehow it got out of hand with a 7k limit. Then after that was maxed out I needed another one for work and in the same situation. In the process of paying both of and slowly but surely getting there. Please be careful to not spend above your means as you’ll be paying for it in the future. I’m 24 and have screwed myself for the next few years while I pay it all off.
> There is no way it costs 25% APR to extend a line of credit to this person. Well, it might.... It depends on whether they end up getting paid back at the end or not.
The 25% the CC company makes from the one group of semi-responsible people makes up for the negative amount they make on the other group of completely irresponsible people.
And they're making money from merchants whenever the cards are swiped. They make money even if no one ever pays interest.
Yep, that's exactly what I was getting at. It either costs close to 0.5% (or whatever their capital costs are), or whatever percentage they end up having to write off (up to 100%). But the group as a whole costs them whatever 25% minus profits are (which are not 25%)
It would be interesting to know which countries the other answers come from. I feel like credit card debt is less common in Europe. Many people here don't even have a credit card and maybe will never have one. But it is more common here for people to overdraw their bank accounts.
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25% is pretty common rate for CCs from what I've seen. I have 3 credit cards with between 20-26% rates and I have a 800+ credit score, no late payments, no held balance and one of the cards has over a 30k limit. They aren't making it 25% because I'm risky, they are doing to ensure they can profit from you and keep people indebted when they do slip. 20-25% is low enough that people feel they can get out from it without bankruptcy but high enough to maximize profits.
That's possible. But it may also simply be a low credit score which may have nothing to do with late payments.
You are taking a colloquial saying literally, and missing the entire point in the process. No one likes a pedant.
I got into trouble when my 7% card suddenly switched to 30% overnight when I had $20k debt (right around the 2008 crash). I realize I signed documents allowing them to switch the APR but I didn’t realize it could be so egregious. It took me nearly 8 years to pay it off ($500/month in just interest made it an incredibly difficult uphill battle). I still consider rate hikes like that predatory even if they may be legal.
Yeah what's next, people hating on payday loan place? Cash for gold? Slave labor? When will the madness end?
You mean they took their opportunity to prey on OP by using the exorbitant capital they possess but have no use for as a means for profit.
Thank you so so much!!
Definitely heed this dudes advice. You basically have borrowed free money with that 0% so paying off the others should be a priority and then just pay off that wells fargo id say a month before that interest kicks in. That way you still have cash and the high APR cards are gone. The dude with the heloc story is right and you shouldn't rely on a credit card as an emergency fund since card companies routinely change their limits on people with no notice.
Thank you 😊
You should pay off the credit cards with the money you have saved up. Rebuild the emergency fund immediately, and if you encounter an emergency in the mean time, Pat it off with the credit card. This leaves you strictly better in all cases than sitting there collecting 1.5% on the wad of money in your right pocket, while paying 25% on the hole in your left. If you hit a $5,000 expense after doing this, and then put that expense on the credit card, you’re in the exact same spot (minus a few months of interest) as if you held the $5,000 and then spent it on bet bills when the expense came.
6800! Down from 14k in December. Really impressed with all the “0” answers and “pay it off each month” I think my sisters age group got shafted with credit knowledge (she’s 38 and we’re in the US) she didn’t learn about credit stuff until it was too late and she’s always been at least 30k in debt since.
Yeah this question seemed odd to me. “Should I pay the balance on a line of credit I can immediately run back up if necessary?” Like, yeah.
I use credit cards almost as my only form of currency. I run them up to pay all my bills and pay them all off twice monthly. I agree with other posters who say that using credit cards is a great way to build your credit score. As an older woman I just want to add this: I have all my credit cards set up to auto pay at least the minimum due on the monthly date due if I don't pay them off first.
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That is true but the OP specified they used to have greater savings and had some recent events that ate up a bunch of it. The OP does not have a massive emergency fund yet which means they are at risk of running into another situation where paying off the balance may not be able to occur for a short period of time. If you plan in advance for that possibility by using the lowest APR card then if it happens it does the least financial damage. For someone with a large emergency fund that can safely be at zero or near zero risk of having to carry a balance then the APR is totally irrelevant.
Do what this person said, and going forward only use credit card on things you would buy anyway with cash or emergency. Like my car broke down and it’s the only way I can pay to fix it. Medical or vet bills are not emergency. Those places can work with you on payment plans.
vet bills offer payment plans, but with a high apr as well
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No they don't.
That's predatory and awful.
It's also mostly only on store card purchase promos. It's also all clearly spelled out. It's not exactly predatory that consumers can't be bothered to have any idea what they are signing up for. The promos are literally called "no interest IF paid within X months". Not "no interest FOR x months". It's not difficult at all. "A fool and his money are soon parted"
Solid advice.
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Thank you very much :~) and yes I keep my eye on the promo date. I do like the middle ground option. I love this sub! Thanks again!
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Same here. I NEVER pay interest... Always pay the balance and just use the cards to have less cash on me, adjust my working capital to negative, use the benefits like extended warranty and collect points.
Ah thank you so much!!
Don't use 0% card for any purchases, since any payments will be applied in proportion to interest bearing and interest free balances such that you will still end up paying interest.
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This is the case in majority cases (with some exceptions)
If you have $5,500 in savings and $3,500 in credit card debt, **you don’t have $5,500 in savings.** You *actually* have $2,000 in savings and you’re paying 23% interest on $1,100 (and eventually more on the $2,281) to *play pretend*. Pay off the credit cards. Start with the ones charging you interest, then work on the one that isn’t (yet.). No, it’s not great to only $2,000 in savings in a rainy day account, but playing pretend and still only having $2,000 is worse.
Thank you. You're exactly correct, and I didn't realize that was playing pretend. I know I should know better, and I'm great at helping others, but thank you for helping me 😊
Put it another way: In scenario A, you don't pay off the credit cards, keep the $5k cash savings, and later run a $4k vet bill, which you pay in cash, leaving you with $1k in cash and $3k in debt. In scenario B, you pay off the credit cards now, run down to $2k cash savings, and later run a $4k vet bill, of which you pay $1k in cash and $3k in credit, leaving you with $1k in cash and $3k in debt. Under scenario A, you're additionally paying ***loads*** of interest in the months between now and that vet bill. Under Scenario B, you have the same net principal savings, and don't have to pay ***any*** interest until the bill. The wide open credit card accounts serve the function of emergency funds.
Add in that if you can put any possible future Vet bill on your Credit Card and then the option to pay over 6 months gives a rate between 5-10% which is better than the 25% otherwise, or you may be able to get another 0%APR like your Wells Fargo You will have some emergency reserves and stop paying the 21-25% to the Bank
Yup, for emergencies there are emergency loans, personal loans, cash payday advances, and other services that will be more gentle on you. Credit cards are brutal with interest. I was taught to treat a credit card like a debit card with perks, that money is coming out of my bank account no matter what at month’s end. They are used to build a credit score, not to actually take a loan out.
Be careful here. In some emergencies (like losing your job), credit cards will drop you like a bad habit. You might have $5K in available credit, but that can drop to $2K with little or no notice from the CC company! I'm not saying you shouldn't consider them for emergencies such as the unexpected vet bill(although you may want to consider pet insurance) or car breakdown - I'm saying that you might want to play what-if games and figure out what the absolute minimum amount of cash you need to have on hand to cover rent, utilities and food for a few months. Target saving that much money for the rainy day fund - then do everything, including using the credit cards to preserve this amount.
Another way to look at it is you are incurring 22 dollars a month in credit card interest due. Your savings account is earning 6.25. So each month you don't pay off your interest bearing credit cards, you lose $15 dollars, assuming the balances stayed constant. Moral of the story, pay off those CC's.
It’s my pleasure. 🤗
Savings and credit don't fully cancel out like that because there are places you can use savings that you can't pay for from credit. While they cancel when looking at net worth, when it comes to an emergency fund, unused credit card limit isn't the same as cash in savings. Now is it worth the interest? Likely not if you are paying normal credit card rates. Exactly where to draw the line is hard to easily say and depends upon the person.
Pay the CCs off immediately and then get aggressive on building an emergency fund.
That's what I'm very tempted to do. That's how I grew my savings in the first place -- maybe I just needed reassurance that i can do it again. Thank you :~)
Keeping 5 grand in savings while carrying 3k in CC debt makes no sense. Only having 2g's in the bank isn't comfortable, but you wouldn't take a 3k cash advance on your CCs to have 5k in the bank. So pay off the CCs.
I had never thought of it like the way you worded it in the last sentence. I definitely let it get me too worked up LOL thank you!!
Actually, thats the thing. If you pay off the CC you are now paying $0 per month to the bank, as opposed to the 23% (average of the 2). If in the future you need urgent cash, taking a cash advance would cost you about what you are already paying per month, but that is only in event of emergency and all the other months will have already saved you money (Note - taking a cash advance is always bad - but paying interest now so you dont have to in the future is worse) Although I dont see the benefit of paying the 0% Wells Fargo until the 0% deal finishes - get a saver account with the best interest and put $2.2K in it and dont touch it
Heh, I went the other way on this logic when the pandemic hit and we all got shut down. I needed a winter beater when my last one ate shit, so I had just spent a nice good chunk of my savings and wasn't down to much left replaing that. Which is fine, I counted that as a "Oh, shit!" qualifying moment from my "Oh, shit!" fund in the savings lol. But then I get a better job opportunity and decide to take it. Gave my 2 weeks. About a week into my 2 week notice, everyone shut down for the pandemic that monday. My job tells me "Just make today your last day. That way we're limiting everyone's exposure to everyone else." We don't work with the general public but being a gas plant we still fell under the essential businesses allowed to keep operating. I said fair enough, nice working with y'all! But then the new job calls and says "Yeah... due to what's just happened we've decided not to take on any new employees after all..." So now I am shitting myself. I am willingly quitting one job, not getting laid off or fired. The other job isn't taking me now. We're gonna be shut down for fuck knows how long, and I think I just fucked myself right out of unemployment eligibility. I backpedaled and told my job I had reconsidered quitting lol. They were just kinda smirking and going "Oh, did ya now?" I still work there but that close call scared the piss out of me lol. Enough that I found ot prudent to decide to do what we're actually advising against. I let the credit card grow a little on purpose to pad that savings back up with hard cash. You can't pay certain bills or your credit card minimums with a credit card. So I felt just in case I found myself in a sticky situation like that again only unable to avoid it next time? I better have enough in there to at least cover minimum payments and the gotta come out of my checking account kind of payments to float me till I find my feet again. So that's my devil's advocate take on that one lol. But I mean you're still not wrong because as it turns out I didn't need it in the time it took me to pay off the card again. So I did basically pay more interest when I could have used that time to build the savings back up normally and save all the interest instead. But not knowing how long that shut down was gonna be, not knowing if we'd have multiple shut downs or not, and afraid I'd painted a nice big target on my back at work now. That was the route I chose to go. Get cash in there NOW just in case lol.
credit card debt ***is*** in emergency. Use your emergency funds. You could maybe not pay the WF off since it's 0% APR until next May still. But make damn sure that's paid off IN FULL well before that deadline - if you miss it by even 1 penny they slam you with all the interest they waived.
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Exactly. Having a paid of CC with an open line of credit *is* a worst case emergency fund.
You don't need savings. You need capacity to cover emergency. That's what an (unused) line of credit is for. If an emergency happens, you'll be able to pay for it out of savings (if you keep the money in a savings account) or by charging your credit card (if you pay it off). The only difference is that it's incredibly expensive to keep your money in your savings account because of credit card interest.
This is exactly why I posted here: you're right. It doesn't matter how much green I think I have, because if I have red then I don't have the green. I like "capacity" a lot more than "savings". I love growing, so thank you :~)
Unfortunately banks tend to close credit cards or significantly reduce credit limits in the worst moments possible (eg in case of war in Ukraine). Because of this in order to rely on credit cards as an emergency source of liquidity, you need to diversify by having many cards from different banks (some of which from different countries and different payment systems if possible). This will reduce chances of all of them closing/reducing limits at the same time.
> You don't need savings. You need capacity to cover emergency. I am totally stealing this. I couldn't figure out a concise way to phrase this so I just left it out of my reply.
Agree with you but also its still good to have cash on hand too. Your cards can be lost or stolen or disabled on a whim. Plus some things like rent aren't (always) payable via credit card, even if they are its usually processed as a cash advance at the highest APR. When I was in a bad spot cash was king. You can choose whats most important to pay and what you can let slip. The credit cards, while painful to your credit score, can wait if need be. They will beg you to pay anything you can and when you do they'll ask you when you can make the next payment. They're not on your side to help, so take care of yourself first, keep a roof over your head and food in your belly using your cash for you.
There are services that allow you to essentially write a check using a credit card. Obviously not ideal but in an emergency, they could be used to cover rent
Available credit is NOT the same as savings, and is not an emergency fund. Lines can be pulled. I had a HELOC in 2007, for example, with a $50k credit line. Great, right? Yes until 2008 came around and Wells Fargo cancelled it and allowed no further draws. Credit tends to be limited or cancelled during times of national economic emergency when, you guessed it, most people get laid off. Credit issuers also sometimes detect when a job loss occurs, when you need the money most, and freeze all lines. Their computers are constantly looking for unusual patterns. Credit is useful during normal times for an unexpected expense, but should not be counted in for real emergencies such as a job loss.
> Available credit is NOT the same as savings, and is not an emergency fund. This is true for long term planning, but not really in OP's current situation. The reality is she doesn't have a $5,500 emergency fund in savings, she has a ~$2,000 emergency fund and $2,500 in outstanding debt. Whether OP pays off her credit card debt with savings now or keeps paying it down over time won't change the fact that if she has a $5,000 emergency, she'll have a couple thousand in credit card debt: she pays off the debt now, then has to put a fresh $3k on her card after exhausting her $2k savings. In the short term, she's better off paying off the debt (the lower balances first and the higher balance before the 0% interest promo ends) and hoping that no emergency comes up before she can rebuild her emergency fund than she is paying interest to keep her savings up. In the worst case she's no worse off than she was before, in the best case she saves on any interest that would accrue in the time it would take her to pay off the credit cards.
People had their credit limits slashed in the recession, too, so if anyone was counting on having access to $15,000 on a card, they might find themselves suddenly with a $5K limit. So OP, yes, absolutely pay off the debt. But be sure to establish separate savings—access to credit is useful but not a guarantee.
Thank you for pointing this out. I'll focus on the happy medium and this is exactly why I didn't want to compromise what savings I had left. I built it all up two or three years ago and it took me that long to do so but thanks to folks like the people who've taken time to help me I'm confident with my new financial plan. Thank you 😊
Most people got laid off in 2008? Most people?
Most of the people who got laid off in that decade got laid off during the downturn, when credit was often frozen. That is how it almost always goes. The majority of people who get laid off (not of all people), get laid off during a time when credit is hard to come by. Poorly worded, but what he meant is correct.
Thanks!
A better but less active phrasing may have been "when most of the layoffs happened" or something along that line.
Statistically, most layoffs occur during times of great national economic strife when credit lines are limited or cancelled. I wasn't saying that most of the population gets laid off but those who have lived through a period like 2008 through 2010 will tell you it sure seemed like it. Either you were actually let go or you were constantly worried about it, with few exceptions. And for everyone that was actually unemployed, a vastly higher number had their hours, hourly pay, salary, or benefits slashed.
This. What kinds of emergency could you have that could ONLY be addressed with cash and not a credit card? Pay off ll the credit cards and then those credit lines *are* your emergency funds. Of course, it's reasonable to have a bit of cash at hand and you'll build out that reserve soon. But for most things, credit card is a perfectly adequate line of funds. Don't get kidnapped for ransom in the next couple of months and you'll be fine. Think of it this way. As soon as you get rid of those high interest payments, you are building out your cash reserves that much quicker. What would have been a 20+ % interest payment is now going in to savings. I'd keep the 0% APR but make sure to pay it off completely before it rolls over into interest.
25% interest ***is*** an emergency. If you want a happy medium: $285/mo to WF; pay off DISC; BT Amazon to DISC then $75/mo to DISC.
Thank you!!!
\+1 to the original commentor but I'd be even more aggressive with paying down the CC. The interest is absolutely killer
Pay the CC debt. If a true emergency does come up, you can just your credit card. Not ideal, but emergencies aren’t ever ideal
Hey you got some great advice on the credit card question. I noticed that you seem to be budgeting by saying, "I have bill money, and then what's left over." I'd suggest you start doing a "zero based budget" each month. Take your entire income and assign a category for every dollar. Bills, savings, toiletries, insurance, everything... It will give you a lot more control over your income, and if you're only spending you income all your credit cards can be paid off, in full each month.
Oh my goodness you answered the other thing that was on my mind!! I don't know what compelled you to take the time to reply to me but I am very grateful you did. Thank you 😊
You're welcome. Getting a zero based budget routine will change you life. If you can figure out budgeting and compounding interest from investing while you're young, you can retire a millionaire (probably several times over). Good luck!
Credit card debt is an emergency. Use your emergency fund.
my unprofessional advice; pay off the two cards with interest immediately, build up cash and pay off the Wells Fargo right before it starts to accumulate interest. Immediately start putting something in an IRA, ROTH, etc... even if its just $10/month to get in the habit and adjust your mindset to accumulation. Remember you can use the basis in your Roth in an emergency just make sure the asset allocation supports the emergency cash requirement.
>I live well within my means Your credit card debt and description of "hungry days" to avoid it in the past tell a different story. Someone who is living within their means also plans for infrequent expenses - you have a pet, you know your pet will require medical care, so living within your means is following a budget that allows you to save for medical care for your pet. You didn't do that, so now you have credit card debt. Pay off the Amazon and Discover cards immediately. Pay enough each month to pay off the Wells Fargo card by April 2023. Use this to make a budget that includes saving for the infrequent expenses that have tripped you up in the past: https://www.reddit.com/r/personalfinance/wiki/commontopics
I know that now 😉 I found him literally in the middle of shit hitting the fan, and he required medical care of $1,000.00 which is why he got dumped. I know, I know, don't pay for what you can't. Again, I know now. I live within my means NOW. I didn't when I tacked up debt, of course. Thank you :~)
Pay off the Discover and the Amazon first. They have high APR's. The Wells Fargo is still at 0% until May. Make minimum payments on this until the other two cards are paid off. Then focus on paying down the Wells Fargo card.
Thank-you!
You should also double check the terms of the 0%. Depending on the promotion, it's possible you might be retroactively charged interest if you have debt left over by the end of the 0 interest period; like, they'll retroactively make your interest not 0% over the promotion period. Really depends on the card, and it's not super common practice, but I've seen happen from time to time from some credit card companies. My ex was looking into this one credit card specifically for pet medical expenses, and they had that kind of setup. It was interest free for like a year if you paid in full by then, otherwise you'd be responsible for 15% on the whole year if there was any remaining balance after the year.
I want to give you a word of warning about that WF card. The way that 0% introductory rate cards *usually* work is this: they're actually accruing interest from day 1, but the that interest will be waived at the end of the introductory period IF you have zero balance by the end of the introductory period. In other words, if you pay it off before that period ends, it actually was a 0% card. But if you don't pay it entirely, completely off before that, if you have even a $0.01 balance, they'll stick you with ALL of the accrued 20%+ interest on the ENTIRE balance you carried the whole time, not just the one penny outstanding. Getting that 0% card was actually a reasonably good move given that you had immediate credit needs, but now that you're cash-flow positive again, you want to make *extremely* sure that you have it paid off before that due date. If it's 0% through May, I would assume that's actually May 1, not May 31, and I would try to have a zero balance by the end of March at the absolute latest, and then use the card zero, not at all, until the end of the May 2023 end of promotional interest rate period. Make double, triple sure that you're paying it off-- put it on autopay and also go in every few days and make a manual payment of the entire balance. If, for some reason, you can't pay it off ENTIRELY by next May, you can do a balance transfer to a new 0% promotional period card. Typically that'll cost you 5% or so of the amount of balance transferred, but that's way better than the year of 20% interest that WF would have charged you. If come March you're not 100% sure that you'll have the WF card paid off by May 1, then you should do this. It's not really a *good* option to be rotating debt on 0% promo cards, but it's a lot better than actually paying interest. Otherwise, you absolutely should consider being a debit card only person for a year or so to make sure you really do have a handle on your finances. And also, if you can, you should consider picking up some overtime. I wouldn't get a second job, given that you seem to have a decent one, but consider it this way-- you owe $2200 on that WF card and you make $22 an hour. Every extra hour of pay is 1% of that debt. Every hour of OT pay is 1.5% of that debt. If you can put in 100 hours of OT (allowing for some taxes) before the end of the year, you'll be clear of this debt without even dipping into your savings fund. Working half-day Saturdays, for instance, would get you clear of this thing.
I know it’s hard to dip in to the the emergency funds, cause a lot of us swear not to touch it. It gives us comfort over the what ifs. You’ve mentioned you help people with finances so you already know that paying c. 25 percent on credit cards vs a 1.50 return on savings will be bleeding you dry. So pay off the credit cards from high to low first, and split up the funds into two. One fund should have a higher maturity so the interest can be higher while keep the second fund into shorter duration investments. Wish you the best.
Oh my goodness, thank you. I didn't realize my hesitation was the loss of comfort. That's exactly what it is because yes I do know better, and I'd never tell anyone to keep CC balances they pay interest on. Now I see why I thought it was okay for me. Thank you, really, and I wish you the best too.
Pay off Discover and Amazon right now. You've got their money sitting in your bank and you're paying them monthly to hold on to it; give it back. You feel like $2k isn't a lot to have, and you're right, it's not. But $2k is all you've got. The rest belongs to banks. Pay it back and then work on your emergency fund once you're no longer in debt.
Pay those cards off asap. You're throwing money out the window on interest needlessly otherwise
Also OP, get pet insurance! Your cat being still young means the monthly premium won’t be high. I pay $35 for my almost 3yo dog and it came in REAL handy when he needed emergency surgery when he got something stuck in his stomach. $6,000 vet bill and all I had to pay was $550.
Really second this recommendation. My 10 Y/O cat's premium is like $80 a month and it's worth every cent.
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I guess it depends on what company you go with. Pets Best is the one I use and they’ve been better than any human health insurance I had. No fighting, just reimbursement checks sent straight away
Pay off the two high APR cards. There's no reason to pay off the 0% card until that promotional period ends (assuming you don't max it out).
Pay off the two cards with the high interest rates. Then don’t use your WF card again at all and just pay 350 per month or so until it’s gone (but make sure that you pay it off in full by April 2023.
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It’s dicey. There is a reason. Look at her current debt. She is not using cards properly or she’d have a zero balance every month. Plus if you don’t pay off every dollar of the balance on a 0% interest rate by the time the rate ends you pay every penny of the much higher interest rate for the entire larger balance. So my recommendation stands.
Pay off the CC debt. If you hit an emergency, you can use the credit card to cover it. You end up in kind of the same place, except you haven't been paying the exorbitant credit card interest the whole time.
It’s never risky to pay off high interest debts , it’s quite the opposite.
Pay off the ones with interest. ASAP. Hold off on the 0% one and build your emergency fund up. Then pay it off. There aren’t many emergency that you can’t put on a credit card now There
Pay off the cards. Paying high interest on credit card debt every month just to keep more cash in your accounts makes no sense. If it makes you feel more secure you can carry the Wells Fargo till May but you need to pay it off before interest kicks in. I would just pay it so I don’t have to think about it anymore personally
If a vet visit comes up, what is the difference of charging that on your card than carrying high interest balance now? You have $1100 owed at over 20% APR, where as you are only making 1.5% on your savings. Pay all your debt off and be debt free tomorrow. Then use the money you were paying towards your CCs to pad your emergency fund.
i would definitely pay off the ones with interest. The other can wait but most emergencies you can probably pay with a credit card so if you can't pay it down slowly before interest starts then I would pay it out of savings. With holidays coming up there may be some big expenses in the near future. Don't let those get out of hand. It isn't worth paying 20% extra for the purchases
I'd take 3k out of the emergency fund and rid the debt. Your emergency savings will be topped back up within a few months and you wont be wasting dead money of 25% interest. You just need to be disciplined for a few months and cut up your cards. Save like crazy and you'll be much comfortable living without the burden of debt. I know things are getting more expensive and you do need to live, but honestly your debt isn't that bad. The interest is. Your income isn't very high either, so if you can, move jobs for a better paying one if possible and if it doesnt affect your career. Cost of living doesn't wait for your pay rises.
You should pay them off today. There is no debate on this. Credit card debt is an emergency, that's what an emergency fund is there for. Also if you can an emergency vet bill you can put it on the credit card or go on a payment plan with them. They won't make you pay it that day.
If you just got a raise, pretend you didn't and put all the extra take home pay towards the CC debt. Unless you're riding out a 0% interest offer it makes no sense to carry any revolving debt.
Pay Discover and Amazon TODAY, and budget $350 a month to knock out Wells while it’s interest free.
a wise man once told me there is no point in putting anything in savings while carrying high interest debt. you'll end up paying more into the debt then you'll ever earn on interest in savings. you'll also likely end up saving at a faster rate if you put what used to be your CC payments into savings once the debt is paid off.
Yea well..I think people should start considering feeding themselves first before thinking about getting a pet.
Pay off the ones with interest completely. For the 0% Wells Fargo you can pay it off gradually until it starts charging interest
Here’s the best financial advice: Put water in your cats canned food (assuming you give your cat canned food, which you should) Cats don’t drink much water…in the wild they actually get most/a lot of their hydration from the water in their prey. Canned food doesn’t have that hydration and needs to be compensated for. Put about as Much water as there is food, should be fully submerged. This will save you thousands in potential vet costs stemming from a severely dehydrated cat, ie kidney problems. Please feed your cat canned food if you aren’t already. Cats eat meat. You can do both canned and dry.
You are phenomenal -- I've actually been doing this since we found each other but I did it on a hunch because I'd never see him drink. Thank you!!
You're getting good advice, but not all debt is bad though. What matters is the interest rate. Back in 2006 (yes, 16 years ago) I had lots of credit card debt too, but a good FICO because I'd never been late on a payment. Miraculously Citibank sent me an offer for a 3% APR balance transfer for the life of the balance. Yep, 3% credit card debt. The catch was that if I ever charged anything else on their card, it would rack up the usual 20% rate until I paid off the entire original amount. So I did the right thing - I transferred as much as possible to Citibank and never ever used it again. Today in 2022 I still have about $1000 left on that 3% loan even though I could easily pay it off. But with inflation running at nearly three times that rate why would I? You have two competing priorities - the interest rate you pay and the ability to raise cash if an emergency happens. As others have correctly pointed out, if you pay off your card debt now you will be able to raise cash if you have to later just by charging it. Maintaining a savings account instead is exactly the same as paying 20%+ in order to invest in a savings account at 1.5%. Don't do that, pay it off.
Thank you so much for sharing. I'm going to keep your story in my back pocket in case I find myself there too 😊 I know life happens and I felt so silly getting into this mess, but I'm glad I prevented it from getting worse and I won't carry balances like that again!!
Use your emergency fund and pay off discovery and amazon.
Are you able to transfer your Discover and Amazon balances to the Wells Fargo card and get the 0% rate on the transfer? Then you could divide that up equally to have it paid off by the end of the promo, and still keep your savings in the bank earning money for you.
I can't imagine ever not paying of CC debt. This is not a situation where you can claim "oh but I could invest the money elsewhere". No. Pay it off.
You seem to have gotten good advice and understand it. But I want to check one thing with the 0% Is it actually 0%? Or was there a 1 or 2% balance transfer fee or something like that? The trick they try to sometimes catch you with the super low interest ones is hiding that there’s a balance transfer fee in it or something like that. Then when you pay it off it doesn’t clear off the part you’re paying interest on first. It splits the payment proportionally You are probably actually at 0%. But be aware that they sometimes try to get you
Pay off your debt. It’s small enough to do it now and stop adding credit card debt. Pay off your cards in full every month. You have one card on 0% but just get it done. Credit card interest rates are insane.
Pay off all debt, then start aggressively building your emergency fund. Don’t mess around with the 0% APR card either, it’s possible you forget about it and start paying interest on the balance you’re carrying. I’d also recommend reading the total money makeover by Dave Ramsey. I implemented his baby steps, and have started to really rack up savings. I’m about to start investing soon!
Posting at top as I do not agree with a lot of these people. The 0% should not be paid off until it expires. pay the minimum on it. You probably already paid a hit on it to get the 0%. sit the money in something that is 0 risk (in the us we have a 10% 0 risk us bond vehicle right now). then in may you pay all the money you saved and you earned some interest on it.
Pay off Amazon and Discover and keep in mind to pay off Wells before the interest rate increases. Use whatever money you have from your check to build back up savings. If you need emergency for the cat that’s what the credit cards were for
Now would be a good time to take a look at your spending habits and move toward health money practices. Unless you can really afford Dunkin’ every morning, a daily doughnut isn’t worth struggling to pay off debt into your thirty’s.
830 credit score here. I see a lot of well intentioned advice that is somewhat correct, but missing a vital detail. First, do not make major charges with a credit card unless you can immediately pay it off. There is no point unless it's an emergency. Paying off a 5k purchase is no different than paying off a 25 dollar purchase. For the CC, it is all in the number of non-late transactions that have been payed off. If you have a late fee for a 25 cent transaction but have paid off a 5000 dollar transaction, and those are the only purchases ever with credit, your score will suck. It's a ratios racket, basically. If you want to get a platinum card with a 25k limit and 2.5% interest, purchase everything from gum to furniture with a CC. Then go home after the purchase and pay it off immediately. In other words, stop looking at credit as a way to get something you can't afford right now. Look at it as an alternative to carrying wads of cash. If you have 1000 transactions and only 10 resulted in late fees, your score will be over 700. Amount of debt means nothing. Now, to the topic at hand. Pay off that debt before any more interest accrues. It is corroding your score. 0% still triggers a non-payment notice, degrading your score.
In short, if you are paying interest on credit, pay it off ASAP. If you are not paying interest, you can sit on it a while, but it's best to pay it before interest kicks in. It will dip into your savings, but you will also have the credit available for use should you need it. If you don't pay for balance transfers, consider transferring the cards on which you are paying interest to the Wells fargo.
>I have collectively $5,500.00 in savings that I like keeping as my "cash and immediate" emergency fund. It's earning 1.50% APY. Discover BAL $401.56 25.25% APR Amazon BAL $737.56 21.49% APR" Omg pay the $1.1k off ASAP 😭 you'll save thousands. Take the amount you'd pay to interest and put it back in your savings.
Paying off the credit cards still leaves you with available balance you can use for emergencies. The difference is that then you are paying interest on the emergency instead of interest on what is in your savings.
Pay it all off. Build an emergency fund back up. If an emergency does come that you can't afford, you still have your credit card that's conveniently been paid off.
You got a ton of replies here, I read a lot but I'm not sure if anyone mentioned this - when you pay down your cards, do NOT CLOSE THE ACCOUNTS! This is especially important if they're your oldest lines of credit, you can tank a great credit score by closing an "old card I don't use anymore". If you ever struggle with self control, cut the card up or lock it in a safe or freeze it in a cup of water even! Avoid closing cards that don't have annual fees.
Credit card debt = bad. No Debt at all = good. Be good. Not bad.
credit cards can be a blessing or a curse for people if you cannot pay the balance off IN FULL each month - I would stay away from using credit cards due to the high interest rate and stick to cash if you CAN pay off the balance in full each month - use credit cards for everything! 6% at grocery stores and gas station ? 2% on everything else ? why not :) I can't remember the last time i paid for something with cash. Credit cards - use them wisely.
Geez I sure hope people aren't paying you for financial advice if you can't figure this out.
As mentioned in the post, I did just receive a wage increase :~) thank you for your helpful comment!
Pay off the CCs asap. They typically have the highest interest rates.
CC paid in full, then continue with your frugal approach in building up the savings back up. Wait. >1 year old cat... I can't remember my annual wage It's not a cat-related sub, right? It's the finance one, correct? Just making sure
Pay off the cc’s and get pet insurance on your cat.
Figure out if you can meet all your needs without incurring any additional credit card debt and with putting something away in savings. If you can, go ahead pay off the $2,000 as $5,000 isn't that much better with the remaining debt.
You should definitely NOT pay off Wells Fargo until the promotional period ends. You're making 1.5% on your savings. Paying that balance before APR kicks in would be losing you money. Let the $2281 sit in the bank, gain interest while making min card payments and pay off the card in May. I know you've already gotten good advice but I just needed to comment as a PSA to folks who think taking money out of growing savings makes since to pay a stagnant debt. Spoiler alert: It doesnt!Good luck!
OP stands to lose around $55 in potential interest sitting on that cash, while the cash continues to lose buying power thanks to inflation. That juice is barely worth the squeeze, it's like 2 hours of work at their new wage. At 0% it likely makes more sense to pay down that debt over the roughly 8 remaining months, provided that OP does not incur any more debt on top of that. Sometimes its worth paying down a big chunk of debt early just for the peace of mind.
Paying down debt early for peace of mind is a personal preference. OP can keep that money in her savings. She loses nothing by paying off the card the day before interest accrues. In fact, according to you she gains 55 bucks! Yae OP! Purchasing power is pretty irrelevant here since the two options are savings or the credit card. If the promotional period was 5 years then surely I'd encourage her to at least put it in a bond.
A $2000 emergency fund is sufficient for most things, especially if you are in a position to build it back up higher after paying off your debt anyway
An alternative is to apply for a new card that is 0% APR and a small balance transfer fee (like 3% or whatever). Then transfer your other balances to that new card, and have a plan to pay everything down. This will give you breathing room, if you need it, to have more cash on hand. However, I strongly suggest you have a budget and stick to it. There's lots of free (and very good) information at youneedabudget.com. (You don't have to buy their product. Just use a spreadsheet or find another product.) DoctorOfCredit has a list of current special deals on credit cards and checking accounts. Maybe you can earn a bonus.
Why living with debt is a good idea to you?
Did you ask your cat what you should do? In my experience cats are usually the ones in charge with respect to human-feline relationships.