Should I pay off my credit card? I hear a variation of this question from just about everyone I talk to regarding personal finance. Most of the time there is a deeper question or meaning behind this. The other month a coworker of mine who has come to me for advice from time to time was discussing their credit card debt. Here are the rough numbers I had to work with:

Credit card #1 debt: $2k around 12% interest

Emergency fund: $7k between 2 savings funds.

Minimum credit card payment: $75

Monthly Savings: $400

I started asking follow up questions to get a better idea of the situation. The credit card debt was from the past and no purchases were being made on it. I also found out that the credit card debt was beginning to bother them. Overall money was tight, but they did have positive cash flow.

Answer: My suggestion was to pay it off immediately. I hate credit card debt and being one who used to be in the hole and climbed out, I can very much relate to this story. The debt wasn’t too big, yet the stress and emotional burden of it clearly rattled my coworker. Getting rid of this albatross is the right thing to do. The 2k can be made up in 5 short months taking their current credit card payment combined with the savings payment. Their spouse was nervous about not having the cash on hand in case of an emergency. Worst case scenario in my book was that if they needed the $2k back, it would just go back onto the credit card (or only $1k if they dipped into the emergency fund) and they would be back where they started. You can’t always be defensive with your money management. Sometimes being aggressive is the best approach.

I chatted with the coworker a few days later and was told that the debt was paid off. The spouse was a little worried, but was simply told “get over it.” Personal Finance can be tough love sometimes. I listed the credit card as #1 because (of course) there is another. However that is a follow up piece to come.

Paying off a credit card is one of the greatest feelings you can get when it comes to money management and debt reduction. If you are in a similiar situation as above, my suggestion is to just get rid of it. You will feel much better about yourself when you do. The key factor is making sure you don’t put money back on the credit card. Keep it at a zero balance and learn how to live within your salary!

Would you have suggested otherwise?