How to Decide Whether to Save or Pay off Debt
Some of us have those lucky days where we come across more money than we expected but don’t know if we should save it or pay off some debt. Although every financial situation is different, hopefully these will be helpful guidelines to aid in your decision on where your extra money should go. Take into consideration that these are merely suggestions and they might not specifically relate to you.
The first question you should ask yourself is if you currently have an emergency savings account. People often overlook the importance of an emergency fund, if you don’t have one you may want to consider starting one. If you get a bill or expense that you didn’t expect, it could actually put you in even more debt. If you already have one, move onto the next tip.
The second thing you should consider is how much your debt is actually costing you because some people don’t usually sit down and calculate how much it’s costing them per month. If you find yourself quite shocked with the number, it might be time to pay off some debt so the number isn’t as high. Having said that, you should also look at how much your saving account is making you with the interest.
Another question you should contemplate is what the future may hold for you financially. There is a chance that you may be able to save and pay off some debit if you know you have some more money coming in the near future. Go over your finances and see if you have any tax refunds, gifts, or bonuses that could lead you to pay off debt and save. The other question you have to ask yourself about the future is what are your long-term goals? If you have big plans in the future, you may require quite a bit of money. An example of some of these more expensive plans may be travelling, buying a home, or starting a business. As much as paying off your debt is great, you may need some extra money that you wish you had saved for earlier.
When it comes to money, we often come across difficult decisions on what we should do with it. This is especially the case if your debt is larger than you had expected or you have major plans in the future. Whatever the case may be, the best thing you can do is to look over your finances in great detail and plan where you want your money to go that best fits what goals you want to achieve in the future.
Disclaimer: The above information is general in nature and not intended to be financial advice. You should consider seeking professional advice before following any suggestions in this blog/website.