Friday, April 3, 2009

Paying off credit card debt, or building savings?

The other day my wife told me about some financial guru who was on the Oprah show. My wife really thought the advice this woman gave was good advice. I thought so as well. What do you think?

The advice that she gave was that instead of paying off your credit card debt, you should build up your “savings” or “emergency funds” to cover 8 months of income. The reason being that once you pay off that credit card debt most credit card companies are going to decrease your limit drastically as a result of the current economic condition we are in. It doesn’t matter if you are never late.

So, if you decide to pay off your credit card debt first and you have something come up, some kind of emergency, you can’t rely on putting it on a credit card…instead you need to have funds available that you can access immediately. I have seen some of my clients who pay off their credit cards every month receive a notice that their limits are being drastically reduced. My wife and I also had that same experience with one of our personal cards. We went from a limit of well over $12,000 to a limit of $1,000 in a matter of months.

Don’t find yourself breaking the piggy bank!

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