When to Save, When to Pay Off Debt
Do you know when to save and when to pay extra cash on debt?
Is it better to save or pay off debt? That is the question.
Once upon a time, financial advisors were urging that you make paying off debt a priority before all else. Any extra money that you earn should go towards paying down high interest debt, not towards savings, they said.
They pointed out, quite logically, that credit card interest rates can soar as high as 30 percent when your credit is bad, and that paying the interest on credit cards is like throwing good money away month after month.
However, these days many financial advisors are changing their tune. While it is always advisable to pay credit card bills and all other bills on time – one late payment can make your credit score drop as much as 100 points! – the uncertain economy is inspiring some new and surprising advice.
The problem? The economy is so shaky that there are layoffs all over. Once-solid companies are folding, slashing their workforces, reducing the number of days that their employees work, or giving choices between accepting paycuts or layoffs.
Because of this it is more important than ever to have a comfortable savings cushion so that if you are laid off, or your company folds, or your hours are cut in half…you have money to cover the bare necessities until you get back on your feet.
So now, many experts are recommending that you put any extra money into savings until you have accumulated enough to cover six to nine months worth of expenses. THEN you can go back to paying down high interest debt until it is eliminated.
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