Should I Pay Off My Credit Card Or Save Money?

This is one of the most googled questions every single year. It is always a battle between whether to build your bank account or get out of debt first. 

Good debt is a lie!

Let’s start by addressing one lie that has been perpetuated for generations. Buying a home is good debt. Paying for college with loans is good debt. Borrowing money to start investing is good debt. While these may all be worthwhile endeavors; there is no such thing as good debt. All debt is bad! We may have to use debt at certain times in our lives to purchase things that we need but that does not mean that debt is good. The minute that you acknowledge that debt is bad, the sooner you will start working to get out of debt. Debt is like holding onto an anchor while trying to stay afloat in the ocean. Every time you try to rise, it pulls you back down. The biggest factor that keeps most people from achieving financial freedom is too much debt. The worst type of debt to have is credit card debt.

Facts about credit card debt

Credit card interest rates are at the highest level that they have been at in 26 years and credit card rates are not done rising. The Federal Reserve will likely keep raising interest rates for at least the next six months, which means more pain ahead for anyone with a high interest loan. As the Fed raises rates, banks, financial institutions, and lenders will keep raising rates.

So, should I pay off my credit card or save money?

The current economic climate makes the answer to the question very simple. Pay off all of your credit card debt now! 

Credit card interest rates have skyrocketed over the last three years. Credit card interest rates are averaging between 17.9% to 20.4%, Those are the rates being charged to people with excellent credit scores above 740. People with good credit scores that run from 660-730 are now being hit with interest rates as high as 22%. Borrowers with subprime scores beneath 660 can now face interest rates in the 30% range. Cards like the First Premier Bank Gold Card charge 36% interest on purchases along with massive card fees. The fact that a card with 36% percent interest calls itself a gold card is laughable.  High interest rates like these make it almost impossible to build wealth.


Let’s say you have $10,000. You are trying to determine whether to keep the $10,000 in your savings account or pay off $10,000 in credit card debt. You can keep the money in a money market account earning 2 percent interest or you can pay off your credit card debt which is charging you 24% interest.

It will take you 36 years to double your savings at a 2% interest rate. This means to turn the $10,000 into $20,000 will take 36 years.

Your credit card debt however is doubling at a much faster rate than your savings could ever grow. The unpaid balance on your debt after making the minimum payment is growing at a 24 percent rate.

A 2% minimum payment would leave you repaying $82,400.00 over 35 years.

A 3% minimum payment would leave you repaying $29,332.35 over 29 years.

As you can clearly see, paying the minimum amount on your credit card will leave you with a giant debt snowball with interest accumulating daily at a much greater rate than the rate it is earning in a savings account. Trying to save money while you have credit card debt in a high interest rate environment is a losing proposition. When it comes to credit card debt, compound interest is working against you.

The only exception to this rule is if you have a 0 percent APR credit card or are an active servicemember. Zero percent APR credit cards are cards that do not charge you interest on your purchases for the first 12, 18, or 24 months. You can take your time paying off these balances because you are not paying any interest. Active service members have federal limits on the maximum amount of interest that credit cards can charge them while serving. Active duty military have a 6% interest rate cap on their credit card debt while serving in the military.

The best advice in this high interest rate environment is to attack your credit card debt vigorously and worry about saving cash when your debt load has dwindled.