We Have Money to Payoff Our Debt. Is That a Smart Thing to Do? – James

“Dear Steve,

My wife and I have 7,000 in credit card debt and 17,000 in cash in our savings account.

Is it better to pay off the credit card debt to $0 and have 10,000 in cash left or is it better to pay off the cards a little at a time in chucks of about $1000 per month. I tell her it is better to pay off the debt to save the $300-$400 in interest per month.

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Dear James,

The logical answer is that it would be a smart thing to do. At $300 a month in interest it is costing you $3,600 a year just to make payments and not get out of debt.

But the situation is an interesting one. Your wife finds more comfort in having the cash in the bank that paying off the debt. Why? I’ll bet that the larger balance in the savings account makes her feel safer and that lowering that balance makes her nervous. That is what you need to explore.

I think that if the two of you sat down and talked about how to avoid running up the debt again, safeguards to avoid that, and a plan on how to begin to save again, that would provide her with more comfort and confidence that you are making the right move.

Have that discussion with her and then let me know how it goes.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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