Aug 3, 2026
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Add us on GoogleIn early 2026, the average American had $6,595 in credit card debt. While this doesn’t seem like an unmanageable sum, credit card debt comes at a high interest rate, and most cards typically set low minimum payments, which can keep people in debt for decades.
Unfortunately, some people have far more than the average debt, which can put them in a precarious financial position. Let’s pretend, for example, that Laurel is 30, was unemployed for a year, and now has $35,000 in credit card debt and $0 savings.
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Laurel has now found work and is looking to start to rebuild her finances. But she’s not sure if she should start investing, put all her money towards paying off the $35,000, or put some cash into a savings account.
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So, what’s the best approach?
A blended approach may be the best bet
The most obvious solution here is for Laurel to get very aggressive in paying down debt and put most or all of her spare cash into eliminating the $35,000 that she owes her creditors.
“I think that mathematically, we’d always want to be paying down the debt given the rates can be severely high,” Clifford Cornell, a CFP and financial advisor at Bone Fide Wealth, told Moneywise.
In fact, the average credit card interest rate is 20.94% as of May 2026. If Laurel’s card charges the average rate and there are 30 days in her billing cycle, she’d be facing interest charges of upwards of about $600 per month.
However, Cornell pointed out a problem with this approach.
“Using all the cash on hand to pay the debt may result in leveraging the credit card for liquidity and to cover expenses and starting the cycle of debt again,” he said.
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Because of this, Cornell recommends “a split-funding arrangement,” or putting some money into savings until Laurel has several thousand dollars in cash saved up.
“Some may disagree, but I think a barrier to the cycle of debt can be powerful,” Cornell said.
This is also the approach recommended by finance expert Dave Ramsey. Ramsey’s popular Baby Steps program, which aims to help people achieve financial freedom, recommends saving a “baby” emergency fund of $1,000 before switching to debt payoff. That way, when faced with a surprise expense, you don’t have to go back into debt and lose momentum on your payoff efforts.
Laurel may also want to invest enough in her 401(k) to earn any available employer matching funds, as a 50% or 100% matching contribution provides free money and offers a guaranteed return equal to the rate of the match.
However, once Laurel has earned her maximum match and saved $1,000 for surprise expenses, the experts recommend that every dollar should go to the debt to get it paid off ASAP.
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Lowering the interest rate on the credit card debt is another solution
Laurel may also want to think outside the box and consider ways she could significantly reduce the interest rate she’s paying on her $35,000 in debt.
For example, she might be able to get a $35,000 personal loan to lower her rate to around 12%. If she took a five-year loan at that rate, she’d pay $779, incur total interest charges of $11,713 over the life of the loan, and have a clear payoff date.
She could choose to accelerate the payoff time even further by increasing the amount she pays each month. But even if she just sticks to that payment schedule, she’ll be debt-free in half a decade, will save a fortune in interest, and will free up more money to put towards other goals.
Laurel should explore her options, decide on how much she thinks she should save for emergencies, and create a financial plan that will help her build a much more secure future.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
