Best strategy to handle credit card debt?

Submitted by jrhodes4797 t3_11dpcin in personalfinance

Hi there. I've begun sitting down and beginning to strategize the best way to pay off my credit card debt now that I have returned to full-time employment. Currently I have three cards:

  • Amazon Prime credit card (lowest balance)
  • Wells Fargo propel (highest interest rate)
  • Citi AAdvantage card (highest balance)

In total, I currently owe $12,500. As it stands, I cam currently being charged about $150/month in credit card interest, and my credit score remains around 760 (I was at 812 in July).

I currently have enough in my savings to cover this entire debt and have a significant amount of money left over. I am utilizing a high yield savings, which accrues me interest of around $180/month which offsets the credit card interest, but doesn't leave me with much to build off of. I recently got a new job which sees me making a bit less than I was previously, but average monthly income is about 4500. In addition to this debt, I have around $1800 in various bills and expenses.

So the question is: What is my best approach here? I don't have any foreseeable need for this money within the next year, but was optimally going to begin the process of purchasing a home within the next 5 years. With all of this being said, what is my best strategy? Initially I was thinking about just wiping out the entire debt and starting fresh with some stricter financial rules for myself (I manage my money well, but was not working for 6 months which lead me to fall behind like this). But I witnessed my parents financial struggles for my entire childhood, and have developed a deep fear of ending up in the same position- to be honest the thought of pulling from my savings kills me. But I know that this debt isn't doing me any favors, and paying it off in small amounts is going to take a long time and hinder any further saving abilities.

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So do I pay the entire balance off, or pay a portion (say $8,500)?

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Thanks for any help!!

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InteriorAttack t1_ja9zxg3 wrote

> I currently have enough in my savings to cover this entire debt and have a significant amount of money left over.

??? Come on man. Pay off your credit cards.

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nkyguy1988 t1_ja9zxl6 wrote

If you have enough cash to cover 180 in interest income at around 4% to balance the probable 20+% the CC is growing at, then you have more than enough to pay it off today. So do that.

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SBXLVIII t1_jaal8f8 wrote

Yes this. OP has somewhere around $50K in savings by my math.

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trmoore87 t1_jaa01oj wrote

Start paying off the highest interest first, then the next highest, then the last card. What are the rates?

If you're paying interest at 25%, that is an emergency, and if you have an emergency fund, I would use it to pay off debt and then rebuild the emergency fund.

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Tenpat t1_jaa62ls wrote

I was going to suggest paying off the lowest amount first and rolling over its payments to the next highest amount.

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trmoore87 t1_jaa8oox wrote

This is fine but not the cheapest way

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Tenpat t1_jaacifl wrote

Cheapest way is to just pay them off with the money he has already. But if he wants to hold on to it then we are just debating the way that gets it all paid off most quickly.

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hilasmos t1_jaa04qm wrote

Pay it off, then it will be easier to build up savings for a house with no payments slowing you down.

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JellyDenizen t1_jaa0q5z wrote

No brainer to pay off the cards, just focus on making the changes necessary so that you don't run up the balances again.

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garrettviking t1_jaa1lpr wrote

Consolidate your debt. Yes your credit score might go down for the first 3-6 months, but after settlements have been reached with the creditor, you'll have an estimated debt reduction of 50%.

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Not to mention, you pay once a month, versus to 3 different cards, which makes it more manageable.

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FlyerFocus t1_jaa01kz wrote

What’s the rate you’re being charged on the debt and what’s the rate you’re getting on your savings? If the rate on the debt is higher, pay it off.

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