Debate: Used to save everything for a 'rainy day' fund vs. just paying off debt first

Back in 2021 I was hoarding $200 a month in a savings account for emergencies while my credit card balance sat at $4,500 with 22% interest. Then I read something about how the interest on debt eats your savings alive so I dumped it all on the card and paid it off by November. Which side are you on for the next $200 - pad the savings or attack the debt first?

2 comments

2 Comments

felix4888d ago

River nailed it mostly but you gotta be careful with that 0.5% savings rate. That's just a standard bank account, not a high yield one. Plenty of online accounts give you 4% or 5% right now, which changes the math a little. But yeah, 22% is still murdering any savings return, so paying that off first was the right move. Just don't let that emergency fund sit in a basic account getting nothing.

riverk829d ago

Kind of like putting a bandaid on a bullet wound while the bullet hole keeps getting bigger. Paying off high interest debt is always the smarter play, your savings account earning 0.5% isn't going to outrun 22% any time soon. Good call dumping that card balance, now you can actually start saving without the bank bleeding you dry.