Pay Off Debt Or Save

For instance assume that you have a credit card.

Pay off debt or save. The rule is based on the fact that the cost of debt is usually much higher than the benefit gained from savings. When determining whether to pay off debt first or save the first step is to get crystal clear on how much you owe explains Barrett. Right now we have a monthly car payment thats 175.

Should you Pay off Debt with your Savings. Just looking at the numbers in the save first or pay off debt argument once youve got an emergency fund established you should pay off the high-interest debt and then start adding to an investment account. However the desire to be debt free may sway them to do the opposite.

If you decide to pay off your debt first this means you will not have money set aside for emergencies which could mean setting you up to take on more debt when an unexpected expense hits. When to Pay Off Debt Before Saving Money. Typically if you have 5000-10000 or more than that then yes you should use savings to pay off debt.

You need to calculate how much youre paying in interest on that debt then try to get that interest rate down as much as you can. Each debt means that we have higher expenses each month and less money to work with to save or invest. You heard that right debtwell deal with you later.

A savings account might be a good place to park your emergency savings but beyond that there are better places to put your money. Lets look at an quick example. Its also very possible to save and pay off debt at the same time.

One method commonly used to pay off debt with high interest rates is called a debt avalanche. Having significant debt can be a burden because of interest over time. Paying off more than the monthly minimum will help you reduce the extra interest you end up paying in the long run.