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Have you ever been in this situation?
You get a big tax refund, or a good bonus and you can’t wait
to blast a big chunk off your credit card balance.

Sounds logical. So when I tell my clients “not yet”. Build up your savings first.
I usually get this response:

“What? Don’t pay down my Credit Card!?” Are you crazy (although they are usually nice about it!)? I’m paying 14% on my debt and I’m getting 1% interest on my savings. I just want to get rid of the debt!

I totally get it, because who’s happy with debt hanging over their head?!

But here’s why I’m not crazy.

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yo-yoFirst, let me say there’s a caveat here. If you have a reserve saved for irregular (non monthly) expenses for the year, and 3 months of living expenses socked away in savings, then have at it! Move as fast as you can and get rid of the debt. I’d be thrilled if you could do it.

But… for those out there that don’t have much savings (or ANY savings!) and struggle with yoyo credit card debt, my “not yet” boldly stands.

Why? Because the goal is to get out of debt, permanently.

If you have no savings, here’s what happens:
• Your mechanic freaks out when he looks at your tires. Clearly, if you want a long life, you need new tires.
• You don’t have the money so you charge it on your credit card.

Over time, there might be several expenses like that and you end up with $5,000 in debt. Ugh! It’s weighing on you because despite your monthly payments, you can’t seem to make headway on paying it off.

So here comes your tax refund of $3,000 dollars. If you pay it all toward your credit card, you cut your debt to $2,000. That sounds great except…. (given your desire for life) you spend $600 on new tires.

scizzorsGuess what? You have to charge them. Your $2,000 balance becomes $2,600……
and the cycle continues.

If you put half the refund in a savings account, you give yourself a cushion for the unexpected. With $1,500 in savings, you can pay for the tires in real time and you don’t charge more on your card.

That’s how you break the debt cycle.

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Of course, you need clarity around your spending and earning (which means budgeting!) so you can continue to build a reasonable savings. Some savings tips.

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Once your savings is substantial enough so you can weather those “life happens” expenses, then you can hit your debt hard and heavy!


Yes, it will take some time to pay off your debt.

Yes, you are paying the interest on the debt. But the few hundred dollars extra that you might pay on interest is a small price to pay to retire the yoyo and be debt free for good.