Should I Use Savings to Pay a Line of Credit?

Deciding how to pay off credit cards is an important decision.

Savings Are an Important Safety Cushion

If you have savings set away, you are probably hesitant to decimate your nest egg, even for as good a cause as paying down credit card debt. It is important to have a safety cushion of savings, in case of emergencies such as unemployment, medical bills or car repairs, and even to keep you from going deeper into debt.

Credit Lines Cost You Money

If you have money in savings, you are probably earning interest on it; if you have a credit line, you are probably paying interest on it. The problem is, the interest you are paying is probably significantly greater than any interest you are earning. In the long run, paying down a credit line will save you interest expenses that would far outweigh what you'd earn on your savings.

Bottom Line

Set aside a small cushion of savings---debt guru Dave Ramsey recommends $1,000---and then use the rest to pay down your debt. It will cost you less in the long run to use your savings. Then you can build them back up once you pay down your credit line.