Is it Better to Pay Down Credit Card Debt or Build Up Savings?

If you were one of the lucky ones and received a end of year bonus, congratulations. You have the happy task of deciding what to do with it. Do you blow it on a new 50" 3D LCD TV or do you use it for a more responsible objective. Do you have credit card debt, why not use it to pay it down. What about putting it in a nice Roth IRA?

You have decided to put off the big screen TV purchase for the time being and use that windfall for more financially responsible goals. Where do you put it, on your debt or in savings?

The answer depends on your own personal situation. What would boost your bottom line the most? If you go purely by the math, paying down the credit cards makes the most sense. If you consider the interest rate your paying and what it's costing you and how little you will earn in a savings account, paying down the debt seems like a good plan.

If one of your goals is to give up credit cards permanently, a nice savings account is necessary. It's hard to make progress when every time an emergency comes along you have to reach for the credit card.

So building up a nice emergency fund of $1000 to $3000 is the way to start. Once you have an amount of cash put away for the rainy day thats coming, then go back to paying off the debt.

If you are anxious to pay off debt faster, then do a little of both. Pay a little extra to the debt and also still put some into savings. Also it's time to get a little creative with your budget. Try for six months to squeeze a little more of your cash toward your goals. Try cutting some items from the budget to arrive at your goals a little faster. Make it a project to sacrifice some of your extra expenses, like cable or dining out, but for only six months to get the job done quicker.

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