Credit card debt should be paid by savings account, if you have one

The average American household has a staggering amount of debt. The ease with which we can shop, online or in person, with a credit card has made it very easy to run up thousands of dollars worth of debt in a short period of time. The ease of use, combined with historically low minimum payment requirements, as led to an avalanche of debt, as most Americans no carry an average of more than $9000 on their credit card balance.

Worse, we are saving money at the lowest rate in nearly 70 years. We aren’t saving money; we are borrowing money. Obviously, this has to change, or all of America may soon be broke. The question is, how do we stop spending and begin to pay off the debt? Many people simply do not have the means to pay down thousands of dollars worth of balance on their accounts. And yet, many of these same people have access to a resource that few consider when it comes time to pay a bill - the savings account.

True, we are not saving as much as we used to. But most Americans do have a savings account of some sort. Most people just save money there “for a rainy day.” The money is there for some nebulous, unknown future emergency, accruing interest at a rate of 2% per year, if you are lucky. And while this money sits there, we continue to agonize over our credit card balances that accrue interest at a rate that may exceed 20% per year.

What to do? Take the money out of the savings account and use it to pay the credit card bill. It’s that simple. “But what about an emergency?” you may say. This is an emergency.  A huge account balance is a wound, and it’s bleeding interest at a phenomenal rate. Applying the savings account money to the balance will help stop the flow of cash. True, you may not be protected in case of an actual emergency, but you can refill your savings account after you pay off your credit card bill. The trick to making this work, of course, is that you must stop using the credit card.

Credit cards are great for ordering online or paying a bill in a restaurant.  But they aren’t intended for extending our lifestyles beyond our means and they never were. They are simply a tool to make it easier for us to shop so that we don’t have to carry cash with us everywhere we go. That’s great, so long as we use them judiciously. Once we start using them to buy things we cannot afford and cannot repay, then they have ceased to be a tool and have started to become a burden.

The emergency is now. If you have a balance on your card and cash in the bank, use it to reduce your debt.

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