Better to pay off credit card or keep saving and maintain CC debt?

[wellsja]

@rchl3321 Our education system has a lot to answer for.

 

[maksik288]

@rchl3321 If you pay the monthly minimum you're paying interest?

If you're paying off everything except the stuff in the interest-free period then you wouldn't really call it an outstanding cc debt?

For me, I'd kill the cc debt every month - even if its still the interest free period - because if you miss the date and accidentally pay late you get slammed big interest.

 

[rchl3321]

@maksik288 I’m paying above the monthly minimum

 

[somethingon]

@rchl3321 You're still paying interest. Read your statements.

 

[valshantal]

@rchl3321 Please read the following link, https://www.bendigobank.com.au/personal/credit-cards/my-card/understanding-interest-free-period/

Hopefully it’ll explain better and with pictures and examples, how you’re getting charged interest on your credit card even though you don’t think you are.

 

[fairytalesrcute]

@rchl3321 Would you rather keep accruing interest (and give the bank more money) or would you rather just pay the entire thing off and close it, thereby not accruing anymore interest?

Seems pretty obvious to me.

 

[rchl3321]

@fairytalesrcute Ok thank you

 

[baltazar]

@rchl3321 Here are some numbers that might help (they are entirely made up based on some of your comments below).

Interest on $10k in savings at 5% per annum. Each month this will give you about $42 in earnings. So next month if you don't take money out or put money in you will have $10,042.

If you have say $3,000 in credit card debt at a rate of 18% per annum and your minimum repayments are $60 a month. Say you pay way more at $500 a month. After that payment they still charge interest on $2,500 which equals $37.50 a month, so the next month you still owe $2,537.50 dollars. The next month you pay another $500, you will owe $2,068.06 so in two months you have given the bank an extra $68.06.

If you paid it all off. You would still have $7,000 in your bank which would give you (not take away) $29.20 a month. Because the 18% rate on your credit card is higher than the 5% on your savings you aren't getting any benefit from keeping the money in your savings. Pay off the credit card.

 

[sls]

@rchl3321 0 off your cc balance every month, never pay a cent of interest on those things. The interest on that will almost always dwarf your gains in savings or investment

 

[lindseym1013]

@rchl3321 “I’ve been doing something really stupid and wondering if I should keep doing the stupid thing”

 

[genesis1984]

@lindseym1013 You should make a post on r/AUSfinance

 

[somethingon]

@rchl3321 With minimum payments you're still paying interest on the credit card. Pay it off with savings as the rate will be higher than any savings account.

NB check your CC account, you will see interest charges every month.

 

[rchl3321]

@somethingon I’m not making the minimum payments - I’m paying well over the minimum it’s just not the whole debt

 

[valshantal]

@rchl3321 I don’t think you understand how credit cards work. If you don’t pay off the whole debt by the due date, then you will be getting charged interest at a pretty high rate on the balance. Doesn’t matter if you’re paying over the minimum, if you’re not clearing the whole debt, whatever balance is left will be attracting that high interest rate.

I think you might be operating under the mistaken assumption that if you pay at least the minimum payment every month, you won’t be getting charged interest. Which is, to put it bluntly, very wrong

while making payments above the monthly minimum on my CC (hence avoiding accruing interest on that debt w/o it being totally gone)

Yeah, that’s not how it works

As someone who owns a lot of bank shares and ETFs, thank you for contributing to my massive dividends from those investments, but frankly, you are fking yourself over.

 

[rchl3321]

@valshantal My dad works in a shop and he says it’s good to always have a little bit of CC debt

 

[daniel3112]

@rchl3321 This is why you take financial advice from people who know what they are talking about

 

[joerussell3000]

@rchl3321 Nothing wrong with CC debt as long as you're not paying interest on it. Use the interest free period, but you are throwing money away if you have savings AND CC debt

 

[valshantal]

@rchl3321 I’ve had a credit card since the mid-90s and have worked at all the big 4 banks in my career. Your dad is wrong. Unless you have a special 0% balance transfer/interest rate promotion on the credit card, there is absolutely no advantage in carrying any amount of CC debt across the interest-free period.

 

[maksik288]

@rchl3321 it is very good that you're asking this subreddit for advice instead of relying solely on your dad. looks like you inherited some smarts from your mum.

 

[daniel3112]

@rchl3321 So you're accruing interest on the debt then