Should You Sacrifice Savings to Pay Debt Off?
Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.
I can even think that the popularity of all of those end of the world stories comes from some wish that something, even anything, would come along and wipe out our creditors!
But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.
Consider Changing Your Debt
Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.
Try to pay off high interest credit cards if you can. Some credit rates are just crazy these days. People are getting notices that their rates are rising to 25 percent or more! Even a fairly low balance of $4,000 can cost $1,000 a year just to service!
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plan to set aside five hundred dollars, and then you never get around to it, you will not be better off.
Balance The Interest Rates on Investments, Savings, and Credit
If you are lucky enough to have a low rate mortgage, but a high return investment account, you will probably do better to leave things as they are. If you can earn 8% on your money, but only pay 6& on your mortgage, you may be better off by paying off your home the slow way.
You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction. - 29866
Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.
I can even think that the popularity of all of those end of the world stories comes from some wish that something, even anything, would come along and wipe out our creditors!
But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.
Consider Changing Your Debt
Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.
Try to pay off high interest credit cards if you can. Some credit rates are just crazy these days. People are getting notices that their rates are rising to 25 percent or more! Even a fairly low balance of $4,000 can cost $1,000 a year just to service!
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plan to set aside five hundred dollars, and then you never get around to it, you will not be better off.
Balance The Interest Rates on Investments, Savings, and Credit
If you are lucky enough to have a low rate mortgage, but a high return investment account, you will probably do better to leave things as they are. If you can earn 8% on your money, but only pay 6& on your mortgage, you may be better off by paying off your home the slow way.
You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction. - 29866
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You can still find ways to transfer high interest balances to reduce your monthly payments. We also provide free financial calculators to help you make the best financial decisions.
