Making smart financial decisions involves prioritizing spending and saving. If you have debt, you probably already know the importance of paying it off as quickly as possible. However, you most likely also know how crucial it is to have some savings set aside for an emergency.
So which should you do first, pay off debt or save? Before making a decision, consider the pros and cons:
Paying off Debt
The main argument for paying off your Lethbridge debt as quickly as possible centers around saving money on interest rates. Credit cards typically have interest rates of 20% of more, meaning you end up paying thousands in interest over the life of the card or line of credit.
In addition to interest rates, debt payments typically eat up a good portion of income. Even minimum payments can eat away at your budget. That said, paying off your debt as quickly as possible frees more money up not only in interest rates, but payments as well.
Paying debt off as quickly as possible also helps ensure it doesn’t spiral out of control. Lethbridge bankruptcy in Canada cases are often traced back to excessive debt.
Saving
A savings account provides a cushion that covers unexpected expenses such as car repairs, major medical expenses, or bills after a job loss or reduction in hours. Most financial experts recommend a minimum of six months’ expenses set aside.
In the event of an emergency, not having enough money in your savings account to tide you over can result in major financial difficulties. This includes everything from late payments and damaged credit to more serious ramifications like foreclosure or Canada bankruptcy.
Spend or Save?
The approach you end up taking depends on your goals and current financial state. Keep in mind that it doesn’t have to be one or the other, either—you can save money and pay off debt at the same time with a little creative reworking of your budget.
The first thing you will want to do is create a financial plan. For example, maybe you want to put a large percentage of your excess money each month towards building up your savings account. The rest of the money you can put towards paying off your debt.
A more aggressive approach will help you reach your goals faster. This means looking at your budget for places to cut expenses and then putting that money towards your savings and debt reduction plan.
Another approach would be to alternate each month. For example, one month you could put all of your money towards paying down debt. The next month, put it towards your savings.
The most prudent might be to pay down your debt first. Debt is expensive. If you do the math, the interest rates and fees you’re paying on your credit cards most likely add up to more than what you’re saving each month. If you put all of your money towards debt, you’ll free up extra cash quickly and once your debts are paid, you can put all of that newfound money towards savings. You’ll be amazed how fast your nest egg grows then.
Regardless of how you go about saving money and paying down your Lethbridge debt, an organized, well thought-out plan will help you become financially stable.
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