Savings Tax Credit
December 14th, 2009
Question: Should we use our tax return to pay off 1 credit card, or pay most of it and then put the rest in savings?
Should we use our tax return to pay off one of our credit cards, or pay most of the balance and then put the rest in savings? By the way, we have no money saved at this point, that’s why we are in debt. Hoping to change this.
Thanks!
Answer: My recommendation is that you set aside $1,000 in a federally-insured savings or money market account as an emergency fund. Then, apply the remainder of your refund against your credit card balances.
My other recommendation is that you pay off the credit cards with the smallest balances first, so you will have fewer accounts to tackle. This gives you a big emotional boost, and helps you stay in the debt reduction game a little longer.
As soon as you pay off your credit cards and other debt, other than a mortgage, you can beef up that emergency account.
Good luck!
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