The Reasoning Behind Holding Onto Our Savings
Marg asked a great question in the comments:
I have a friend who is in a similar situation (has enough savings to pay off credit card debt but opts not to based on fear of emergency). Can you explain the reasoning to me? … If an emergency arises, why couldn’t you use a credit card?
For our situation, the mathematical thing to do is to leave our savings alone. Our debt is at 0% and will be for a little while yet. So we are earning money on our savings (although the average interest rate is well below 2% right now). If we were paying interest on our credit card balance, we probably would have used our savings to pay off the last of it. We’ve paid enough in finance charges through the years and I don’t want to pay a penny more if it can be avoided.
There are emotional reasons as well. I like having money in our savings account that is ours…all ours. We use it and we don’t owe anything to use it. There is something I find very empowering about that. The other day I started thinking about how much we should aim to save up for a good emergency fund. $10,000 popped in my mind and I realized how many emergencies that could cover. That would be an awesome safety-net.
Then there is another emotional reason. I have concerns about the transition phase we will have to go through once our credit card debt is paid off. We’ll still have student loans and a mortgage, but we are going to spend some money on things we have been putting off while in debt reduction mode. There is always the concern that our old habits could resurface. Going into this transition, I think I would rather have some money in the bank in case we stumble a little bit.
Back when we started our debt reduction journey, I was anti-emergency fund. If we had an emergency, we would use our credit cards. Gradually we started up a little account then added more and more to it. It became a “financial blankie” of sorts. The economy may be going a little crazy but we have some cash in the bank. It’s comforting.
I did take a look at our finances today. This weekend my husband and I will discuss and decide what we would like to do. We will be able to pay a chunk of our debt off, but we will have to pull some money from our savings to finish off the rest. We’ll take a look at the pros and cons to figure out what is the best route for our family.
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Filed under: Finance, Money Saving Ideas
