It’s much like a sinkhole or quicksand; once you have fallen victim to the debt of high-interest credit cards, you feel like you are sinking further and further into the abyss.
The good news (well, sort of) is that you aren’t the only one. In the United States, we collectively owe $880 billion, with each adult having credit card debt of about $3,600. The bills keep piling up and, sure enough, you are faced with due dates every month. Who doesn’t know that feeling?
So, while you may owe a considerate amount of your credit cards, the question then comes, am I better off saving my cash or paying off my high-interest credit cards?
It’s a question that many have asked themselves before. This depends on a number of factors, such as your individual financial responsibilities. It’s important to save and have cash on hand, but if your credit cards’ interest rates are high, are you really saving anything? This makes paying down debt difficult, especially if you fall into the cycle of paying your minimum.
In reality, it’s basic math and everything comes down to the numbers. The fact is that the interest rate on your credit card is probably much higher than any interest rate you can score on a savings account. If you have credit card debt, you are likely paying interest on a monthly basis. This ranges and can be as high as 20%.
In addition, if you were saving a potential $10,000 in a savings account at the bank that earns 1%, which is a realistic rate, that amount would only earn you $100 per year; whereas paying off a high-interest credit card with that same amount would likely save you a lot of money in the long-term. In other words, are you really saving if you have a balance that is accruing interest each and every month?
This is one of the reasons many people may want to utilize a personal loan. They are provided with a lump sum in a short amount of time, which is often deposited into their account, which they can then pay off any outstanding debts that they may have. In many cases, in the long run, you would save more by not paying additional interest that would be accruing.
There are a lot of factors that go into the question of whether this is the right decision for you, personally. The fact of the matter, however, is that credit cards often have high interest rates and, in the long term, you may be spending much more than your initial balance. In this sense, saving and holding onto extra cash is less beneficial than just outright paying for your debt. If you take this into consideration, you may want to pay off those debts first before you can freely start saving any additional income that you receive. In this sense, a personal loan may offer you a great deal of flexibility because funds can be used for a variety of things.