Here’s a great question from a subscriber that I received in an email. “Should I save using the online savings account, even though I have credit card and student loan debt?”

My opinion is that you should pay down debt first and save later. If your credit card APR is at 14.5%, and the highest APY on a savings account is 5.15% it should be an easy decision what you should do. When you have credit card debt that is over the savings rate you should be paying down the credit card balance. The only time you should be saving while in debt is when it’s a low balance student loan of <$20,000.0 with a <6% interest rate, or if the company you work for offers a matching 401(k) program (only contribute the minimum amount that will give you the highest match possible).

Even if you have $2000.0 of credit card debt and you think you have something to save for. Pay off your balances then save double.

Example:

Credit card #1- $2000.0 at a rate of 9% with a min. payment of $40.0
Credit card #2- $1000.0 at a rate of 14.7% with a minimum payment of $20.0
Saving $100.00 a month in a online savings account
Assume you have $400.0 a month to apply to this example

My advice:

1. Pay your minimum payment on credit card #1 (Yes, the one with the higher balance) $40.0
2. Stop saving the $100.0 and apply it to credit card #2
3. Pay off $360.0 on credit card #2 till its fully paid off
4. After credit card #2 is paid off, pay off entire balance on credit card #1. All $400.0 until that balance is paid off.
5. After both credit cards are paid off apply the $400.0 to your savings account

It should take you eight months to pay down the balances, and at the end of the year you will already have some good money saved up with no credit card debt. YES!

Remember this statement: you can never be rich if you’re always in debt.