Save money or pay off a credit card: which is better?


Sometimes it’s hard to know what to do when managing your finances–do you pay off your credit card debt, or save your money to meet your financial goals and build your private wealth? While it’s worthwhile to hold emergency savings, failing to pay off your debt could land you in financial hardship.  

Let’s get to the following commonly asked questions:

  • Debt vs saving: which is better? 
  • What are the quickest ways to pay off debt? 
  • Should you use savings to pay off your mortgage? 
  • Will having credit card debt affect my credit score? 

Debt vs saving: which is better? 

Whether paying off debt or saving money is the better option depends on your financial circumstances, however, there are some general rules for managing your finances. 

Dealing with debt by paying regular monthly fees and lessening what you owe will allow you to start working on your savings goals quicker, as you’ll no longer have to pay high credit rates. The money you previously set aside to pay fees and charges can instead be deposited into a savings account. 

The cost of debt repayments is generally expensive, so it’ll benefit you more to pay off debts vs saving. The only exception is if your debt repayments are too high to manage, in which case you might want to look into debt consolidation loans or alternatively book an appointment with a financial advisor. 

What are the quickest ways to pay off debt? 

If you’re keen to save and invest but want to get rid of your existing debt first, you’ll want to know how to solve your financial situation as quickly as possible. Pay off your credit quickly with: 

  • Debt consolidation. This is the process of moving your lines of credit to one account. Consolidating your debts can help streamline the payment process.
  • Pay off multiple smaller debts. Also known as the snowball effect, paying off your smaller debts first frees up capital to pay off your larger debts in the long term. 
  • Apply for a lower interest rate. If you’re paying high interest on your credit card balance, you’re wasting valuable cash every month. Transfer your debt to a very low-interest credit card with fixed interest rates. 
  • Seek financial advice from a professional. If all else fails, consult a financial expert to work out how best to pay down debt. 

Should you use savings to pay off your mortgage? 

If you want to pay your mortgage off early it can be worthwhile depending on your mortgage rates. If your monthly repayment plan is high because of interest, you might want to pay off your mortgage faster to save a significant amount of cash in the long run. 

Although there are various benefits to paying off your mortgage early, you could be faced with the following fees:

  • If you pay off your mortgage using a lump sum, your lender could charge you a fee if your mortgage is at a fixed rate. This is because your mortgage issuer has already priced your interest upon signing the mortgage deal. 
  • While most lenders allow overpayments of up to 10 percent of the amount owed in a year without charge if you pay more you could face an early mortgage redemption fee. To double-check how much you can overpay before facing charges, use a mortgage calculator. 
  • If you choose to make regular overpayments on your mortgage you will also need to check with your lender whether you will be charged a fee.
  • Most mortgage lenders will let you overpay up to 10% of the total amount owed in any one calendar year without charge. If you pay your mortgage off in full you will also have to check whether your lender charges an early mortgage redemption fee.

Will having credit card debt affect my credit score? 

Credit card debt will affect your credit score depending on your card balances and your credit utilisation ratio. Using under 30 percent of the funds available to you will have a positive effect on your credit reports since lenders recognise that you’re responsible for your loan debt.

However, if you have multiple debts and have nearly used all your borrowed money, your score will suffer. Lenders could see you as a credit risk since you’re struggling to pay off the debt you’ve already accumulated. 

To start the process of credit repair, try to pay down debt to below 30 percent of your available funds since a low credit utilisation ratio improves your credit over time. 

Here are some tips to pay the debt quickly: 

  • Take out a personal loan for debt. Utilise a low-interest personal loan to pay off credit card debts. Check out this page for loan application advice.
  • Consolidate your debts.  Use debt consolidations to lower your loan rates and make your money easier to manage. This method means you only have one loan to pay per month. 
  • Use a repayment calculator. If you’re looking to take out another line of credit, use a loan calculator to understand your debt agreement and what fees you’ll pay. If you’re on a low income, it’s important to know whether you can afford a monthly repayment fee. 

Summing up

It’s difficult to know whether you should save for emergency funds or pay your debt as quickly as possible. To save you money in the long run, we recommend paying your high-interest debts first to avoid high monthly fees. 

There are various ways to pay off your debt faster, including debt consolidation, personal loans, and low-interest credit cards

Once you’ve paid off your debts you’ll have more free capital to deposit into a savings account, saving you cash in the long run. 


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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

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