Credit card debt in America is at an all-time high, hitting $2.21 trillion in the second quarter of 2025, according to the Federal Reserve. By July, the average American owed $6,492 on credit cards. (1)
And that’s just the average. Many struggle with much higher balances. Take Alice, for example.
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She owes $25,000 across her credit cards, and is struggling to pay her balance down.
Since Alice is in a deep hole, she wants to pay it off as soon as she can. However, she’s confused by some recent advice from her friends: They argue that you should have a fully funded emergency fund before paying extra to creditors.
What should she do? Should she put as much of her spare cash as possible into a bank account to be ready for a rainy day?
Or should Alice listen to her gut and repay her cards early?
Here are some things someone struggling under the weight of consumer debt should consider.
Alice’s instinct is to pay off her credit cards first and there are some big advantages to that.
For one thing, credit cards have a very high interest rate — averaging 21.16% in May, according to the Federal Reserve. So she’s paying a fortune in interest. The sooner she pays off that debt, the more money she’ll have. (2)
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In fact, the interest rate on her credit card debt is far above the ROI she’ll get from building an emergency fund in a high-yield savings account.
So she’d effectively lose a lot of money by sticking thousands in savings while allowing her credit card balance to remain so high.
In contrast, if Alice pays off her cards ASAP, she’ll free up a lot of cash for accomplishing other financial goals. This will help set her up for a more secure future.
Plus, by paying down the balance on her cards, she’ll improve her credit utilization ratio (your outstanding debt divided by your total available credit), an important factor in the credit-scoring formula.
