When Should You Save or Pay Off Debt?
It’s easy to get caught up in the day-to-day grind of work and paying bills, but don’t let that distract you from a life plan for financial security and freedom. Deciding whether to save money or pay off debt are critical decisions, so let’s take a look at some concepts to help guide you through the process. If a difficult financial situation arises, and you are in need of a loan, CashMax offers a variety of options to help you get back on your feet.
The True Cost of Debt
Should you pay off debt? We all know that borrowing money comes with interest costs, but it’s easy to just charge or take out loans because you don’t feel that pain right away. So, take the time to do the math and see how much your student loans, credit cards, and car are actually costing you. Simply multiply the interest rate times the amount of the loan to see how much you’re paying in addition to the balance. Over time, it adds up to serious money, especially if your loans are for large amounts. Typically, paying off debt is your #1 goal because it saves so much money in interest.
Somebody Call 911
Saving money instead of paying down debt becomes your top priority if you don’t have an existing emergency fund. Car repairs, medical bills, and family emergencies come up all the time. You don’t want to rely on a credit card or loans to deal with them because you’re just going to incur more and more debt in a vicious cycle. In general, you want at least three months of living expenses set aside, just in case, before you start paying off your debt.
Your Life Goals
Take a moment to think about the things that are important to you in life. Do you want to travel? Start a business? Go back to school? All of these things cost money. Take a hard look at where your cash goes. If you owe money on credit cards and other consumer debt, chances are you’re living a lifestyle that exceeds your ability to pay for it. Are you taking advantage of employer matching with retirement accounts? You don’t want to lose that opportunity while time is on your side.
Financial Freedom
Pay off your debt and you’ll free up cash, so you can save the money you need to achieve your dreams. The reality is that it’s going to take a combination of reducing debt and saving money to make your goals happen in the long run. So, now it’s time to set those goals and work with a purpose, and you’ll be on the path to get where you want to go.
