Are you in over your head with debt and considering dipping into your savings to get back on your feet? Before clearing out your savings account, weigh the pros and cons of “going to zero.” While depleting your savings to eliminate your debt can feel appealing, it puts you at risk of going back into debt in the case of an emergency, unexpected unemployment, or an unforeseen medical situation. In general, it’s almost always better to avoid using your savings to pay off your debt. While there are certain scenarios where using some savings to pay down debt may be advisable, it’s better to explore other options first.
If you have accumulated a lump sum of debt and are feeling overwhelmed about how to pay it down, it may be in your best interests to contact a skilled debt settlement lawyer. A skilled attorney can assess your financial situation and provide essential insight on the best repayment methods for your situation.
The Cons of Using Savings to Pay Down Debt
When it comes to using savings to pay down debt, there are more cons than pros. While there are a handful of situations in which it may be a good idea to use savings to chip away at debt, the reality is there are more scenarios in which it is a bad idea. If your situation falls into any of the following categories, it’s advisable to continue paying the minimum payment on your debt instead of emptying your savings account.
- You don’t have a hefty emergency savings account. Every person’s biggest saving priority should be to amass enough money to account for financial emergencies. Being able to ride out life’s inevitable financial troubles should be top priority. This means having at least three month’s worth of expenses in an accessible savings account at all times. It is never a good idea to use this emergency fund to pay off debt.
- You’re struggling to pay your bills each month. If you are struggling to pay your rent, utilities, or the minimum payment on your credit card, you’re not in a position to dip into your savings account. Instead, prioritize reducing your expenses or increasing your income to put yourself in a position to comfortably afford your bills.
- Your debt has a low interest rate. If your debt has a low interest rate or is at 0% APR, it means you are not currently accruing much interest, allowing you to focus on other financial goals—such as creating an emergency savings account—while you make your monthly payments (on time).
The Benefits of Using Savings to Pay Down Debt
If your debt has an extremely high interest rate, it can be beneficial to use savings to pay it off, as you’ll likely end up saving a significant amount of money in the long run by not accruing interest.
Additionally, if you have savings in addition to an emergency account, it’s not a bad idea to use your extra savings to get on top of your debt. These are the only two scenarios in which using your savings to pay off debt is a good idea. The best way to understand how to tackle your debt is to consult with a professional who can assess your situation and determine the best strategy for repayment.
Contact a Skilled Debt Settlement Lawyer
If you are struggling with debt, you are not alone. In America, the average person has three credit cards, and 55% of credit card holders have debt. At McCarthy Law, we are dedicated to helping our clients navigate their financial circumstances and reach a favorable debt settlement. We understand the overwhelming burden that debt can have on people’s lives and are committed to helping clients end the cycle of credit card debt.
To schedule a consultation with one of our skilled debt settlement paralegals, call our office at (855) 976-5777 or fill out our online contact form.