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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Saturday, June 03, 2006

Credit Card v. Savings

If you have credit card debt, like most Americans do, you need to plot out a plan to make that debt disappear. The average American has a balance of $8,000 in credit card debt. The national average for credit card interest rates is approximately 13%. For easier math purposes let's say it is 12% you have on $10,000 of credit card debt. That would be $100 in interest you would have to pay each month just to keep the balance at $10,000 and by the end of the year you have paid $1,200 on interest and you are in the same predicament. Think about money that you have saved. Maybe it is making 1% interest or you have some other money making 6%. As long as that interest rate does not exceed the 12% you pay on your credit card you should be using that extra savings you have to pay back your credit card. Let's say your extra money was making 6%. That is still another 6% below what your credit card interest is so it only makes sense to pay off as quickly as possible the credit card debt.


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