Dear Penny: Should I Pay Off My Credit Card if That Means Saving Less?

Credit card and dollar bills on scales
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Dear Penny,

I’m a mid-30s woman with a good career, but it worries me that I couldn’t survive without my credit card.

I max out my Roth IRA contributions every year, contribute double what is necessary for my company match in my 401(k) and put a set amount in savings every paycheck.

After doing all of that, I have to put essential life items like groceries on my credit card every month. I’ve noticed the balance creeping up.

Should I focus on paying off my credit card each month? Does it benefit me to keep a balance?


Dear J.,

A new depressing stat seems to surface every day about how we’re all one check-engine light or root canal away from financial implosion. And with the scary numbers, the message is always the same: Just. Keep. Saving.

So I get why you might feel pressure to prioritize saving above any other financial goal.

But here’s what we often neglect to talk about when it comes to saving money: It’s entirely possible to save too much of it. If you’re charging basic needs like groceries to a credit card in order to save, it’s costing you money in the long term.

To understand why, let’s start with your last question: Is there a benefit to carrying a balance? In short, no. When you carry a balance beyond an introductory no-interest period, your credit card company is the only one that benefits.

There is a claim in credit card land that carrying a small balance from month to month boosts your FICO scores. But this is pure myth. One of the best things you can do for your credit score is to pay off your balance in full each month.

So while there’s no benefit to carrying a balance, there’s a high cost. Average credit card interest rates are more than 17%. By comparison, the average annual return for the S&P 500 when adjusted for inflation is just 7%. And savings accounts? They earn a pitiful 0.09% in interest on average nationwide.

That means every dollar you put on a credit card is costing you more than you’d earn if you invested it or saved it.

But the good news is that your commitment to saving shows that overall, you’ve got your financial act together. The fact that you’re saving so much suggests that you have room in your budget to cover your expenses and have money left over to save.

You don’t need to pay off your balance overnight, but your top priority should be to keep it from creeping any higher.

Start by figuring out exactly how much you’re earning, spending and saving each month. Since your combined spending and saving will probably be higher than your earnings, you’ll have to cut back until they’re equal.

Assuming you’re not spending money on a twice-daily UberEats habit, Tinder Gold, a Dog Lady subscription box or any similarly frivolous vice, you might need to cut back on saving, at least temporarily. And that’s OK.

Keep contributing to your 401(k) to get your company’s match. That’s a no-brainer, because it’s free money. But you might want to limit your contribution to that amount for now.

If you have a healthy emergency fund — three to six months of living expenses — consider using the amount you typically put in savings to pay off your balance. Or you could scale back on your Roth IRA contribution for now.

Remember: This is only temporary. But getting your credit card use in check now is one of the best investments you can make in your financial future.

Have a tricky money question? Write to Dear Penny and you might see your question answered in an upcoming column.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny.