How To Use Your Savings Account to Get Out of Credit Card Debt
Are you trapped with credit card debt? If so, you might be spending a substantial amount of money on your monthly payments. The worst part of credit card debt is the high Annual Percentage Rates (APRs) that make it cumbersome to pay off.
Credit cards weren’t designed to hold debt for long periods of time. It is always recommended to pay off your credit card debt as soon as possible. If you’re struggling with credit card debt, you can use your savings account to get out of credit card debt. You may be questioning whether that’s a wise option to use your savings account for repaying debt, but the fact is credit card debt can be very expensive in the long run.
More importantly, credit card debt can reduce your credit score.
If you have money in a savings account, it’s always more cost-effective to pay off your credit card debt than continue to earn 0.01% interest on your savings account. However, I don’t suggest you draining all the funds from your savings account to repay your credit card debt. It is always wise to have money saved for unexpected expenses aka rainy-day funds.
Lucky for you, we have some tips that can help you use your savings account to get out of credit card debt without draining it.
Do You Have An Emergency Fund?
If so, you can use it for repaying your credit card debt. Financial advisors suggest that one should have an emergency fund that can pay your expenses for at least 5 to 6 months.
So, if you have such a decent amount of emergency funds, you can use it to get out of credit card debt. If you don’t want to use it fully or if the fund amount is not enough to repay your debt, you can use your savings to pay off a major portion of your debt. Your savings can help you slash your credit card debt to a more manageable amount, and you can pay off the remaining debt with your monthly income.
Take Out A Balance Transfer Card
As we shared above, credit card interest rates make it very difficult to pay off credit card debt. It’s normal to feel scared of putting all of your savings towards paying off your credit card debt.
But what if you get a chance to pay off your credit card debt with a lower or zero interest rate?
For that, you can take out a balance transfer card and transfer all your outstanding balances to a new card. Usually, credit card companies offer balance transfer cards with 0% APR for an introductory period ranging from about 12 to 24 months. After that, they apply a variable APR.
So, I would suggest you repay the outstanding balance amount in the balance transfer card within the introductory period. By doing so, you won’t have to make any interest payments. As you continue to pay off your debt, your monthly payments will lower, allowing you to pay off your debt faster without draining your savings account.
Balance Transfers are a pro-tip for people who want to get out of credit card debt as fast as possible.
Get A Debt Management Plan (DMP)
You might have tried to repay your credit card debt by taking out a balance transfer card, but if you have poor credit that may be tough. If you lack a good credit score and can’t meet the eligibility requirements of a balance transfer card, you’re not stuck!
If this is your situation, you can opt for a debt management plan (DMP) to help you figure out your debt situation. A DMP is a repayment plan designed by a credit counseling agency to help you get out of credit card debt. DMP’s allow you to make a single payment every month to the counseling agency for your multiple credit card debts. The counseling agency, in turn, will distribute the money among your creditors.
Also, your credit counselor will try to negotiate with your creditors to reduce the high-interest rates and waive your late fees. If the negotiation is successful, you can repay your credit card debt with a lower interest rate.
It usually takes about 3 to 5 years to repay credit card debt through a debt management plan. The affordable monthly payments offered through a DMP allow you to use the funds from your savings account to repay your credit card debt.
So, the bottom line is, you can benefit from learning how to get out of debt by using your savings account but without draining it. I hope the 3 ways that were discussed above will help you do so. Lastly, I suggest you replenish your savings account once you become debt-free, and in the future, if you want to use a credit card, please use it wisely so that you don’t rack up your debt!
Amy Nickson is a web enthusiast. She is associated with ovlg.com where she shares her expertise through her crisp and well-researched articles on a regular basis.