Investing

I have credit card debt I can't get rid of - should I drain my savings to pay it off?

David Beren

Published: October 30, 2024 10:30 am

24/7 Insights

• Credit card debt can quickly be overwhelming. 
• This Redditor has the money to pay off the debt. 
• Ultimately, this person will pay more in credit card interest than she earns with her savings account.
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Everyone has an opinion about paying off debt, and likely not for the wrong reasons. While there is no one answer for how to pay off debt, there are some instances in which it’s pretty easy to give the right advice. 

This Redditor is quickly learning exactly that from their post in r/personalfinance. What you have here is someone who has roughly $7,500 in credit card debt and is ready to rid themselves of this financial obligation, which feels like heavy bricks weighing on their shoulders. 

What I love about this post and others like it is that credit card debt is not uncommon, and everyone has a different system and understanding of how best to pay it off. 

The Scenario 

From this Redditor, we know they have approximately $10,700 in a Wealthfront account currently earning 4.80% APY. In addition to the savings account, they also carry around $7,423 in credit card debt, which is the crux of the issue. 

As far as bills go, she pays roughly $4,200 for her mortgage, HOA, car, electric, insurance, phone, gas, groceries, animals, hair, and nails. Unfortunately, this amount does not account for paying off debt, of which she is paying roughly $200 each to three different cards. 

At 49 years old, she takes home around $6,578 monthly after taxes and has approximately $455,000 in a 401 (k) account. Every pay period, she contributes another 12% of her pay to said retirement account, so the hope is that she’ll have her mortgage paid off in another 5 years and can start adding more to her savings. 

The Recommendation 

Overall, I entirely understand Redditor’s concerns about her debt, but the size of her debt isn’t insurmountable. According to the Federal Reserve Bank of New York, the average credit card debt in America is roughly $8,100 for someone her age, so she’s in good company. 

I’m not a financial advisor, so I can only give non-concrete advice in the same regard as the commenters on the Reddit post. I say yes to paying off the credit card debt immediately. I completely understand that 4.80% is a good number for earning interest, but the $600 a month in credit card debt is something she should free herself from right away. 

As she is earning enough to make a fairly significant contribution to her 401K, I’m not worried about immediately wiping out three-quarters of this Wealthfront account. I’d go as far as to say that the Wealthfront account exists right now to avoid paying interest on a credit card. 

No question that once freed from this debt, as long as she can control her spending, she can rebuild this Wealthfront account and work to restore this emergency fund as quickly as possible. 

The Takeaway

I am 100% on board with the entire comment section in this Reddit post, which all agree about paying off this credit card debt as fast as possible. Any time you have debt, especially credit card debt, it’s akin to treading water in an ocean with no rescue. 

This might sound dramatic, but the idea is that you don’t want to be in this situation, and you certainly don’t want to waste money on interest payments. Instead, you want to find a life vest. Metaphors aside, what’s most concerning is that she is paying more in interest every month than she is earning in the Wealthfront account, which is one of the biggest reasons to get rid of this debt as fast as possible. 

Of course, none of this matters if she can’t control her spending moving forward. While it sounds like she can, she must stick to a budget that avoids building similar credit debt or end up right back where she is now.