(MENAFN- News Direct) > According to 2024 data from the Federal Reserve, 46% of American credit card holders carried a balance at least once during the previous 12 months. In addition, LendingTree reports the average interest rate on current credit card accounts is 21.16%. (1)

With so much high-interest debt hanging over their heads, it makes sense for consumers to want to pay it off as fast as possible. But is it worth sacrificing savings?

Must Read

• Thanks to Jeff Bezos, you can now become a landlord for as little as $100 - and no, you don't have to deal with tenants or fix freezers. Here's how
• I'm 49 years old and have nothing saved for retirement - what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast)
• Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake - here's what it is and 3 simple steps to fix it ASAP

Let's say we have a friend named Dante who is debating this question. He has $10,000 stashed away in a savings account for emergencies , but currently owes $9,000 in credit card debt. He would like to be debt-free , and wonders if it would be best to pay everything off all at once or throw every penny of his disposable monthly income, around $2,000, toward repaying the debt.

Both may be viable options, but here's what he needs to consider first.

Benefits of sticking to a savings plan

Assuming the interest rate on Dante's credit card debt is the same as the average mentioned above - 21.16% - and he paid $2,000 per month paying it down, he would be debt-free in just five months, paying about $450 in additional interest. A relatively small, but not insignificant amount added to what he owes.

But despite paying hundreds of dollars in added interest, by maintaining his emergency fund, Dante has shielded himself from going further into debt from any unexpected expense. In this case, he bought peace of mind.

Read more: This is how much US drivers saved on car insurance when they switched providers, according to a new Consumer Reports survey of 140,000 policyholders

Paying off the credit card now

If Dante paid all of his credit card debt immediately using his emergency fund, he would save himself from paying any further interest, but he would also leave himself exposed.

Being left with $1,000 in savings, it could take only one major repair bill or minor medical expense to derail his finances and put him back in debt. Dante could begin putting his disposable income toward his savings, but it might take several months before he feels comfortable again.

A middle road

Dante's $10,000 savings is healthy, but it isn't quite enough to qualify as a full-fledged emergency fund. Many experts recommend setting aside three to six months' worth of expenses in case of a large unexpected expense or job loss.

But if he's comfortable with risking some of it, for now, he can seriously cut down on the amount of added interest he pays on his credit card debt. If Dante put $5,000 of his savings toward the debt, along with $2,000 per month, he could be debt-free in just over two months and only pay about $100 extra interest. He could then, almost as quickly, rebuild his emergency fund and keep it growing afterward if he so wishes.

What to read next

• How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you'll need a substantial stash of savings in retirement
• There's still a 35% chance of a recession hitting the American economy this year - protect your retirement savings with these 5 essential money moves ASAP
• This tiny hot Costco item has skyrocketed 74% in price in under 2 years - but now the retail giant is restricting purchase. Here's how to buy the coveted asset in bulk
• Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America - and that 'anyone' can do it

Join 200,000+ readers and get Moneywise's best stories and exclusive interviews first - clear insights curated and delivered weekly. Subscribe now.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines .

LendingTree (1 )

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

MENAFN06102025005728012573ID1110157323