While most would argue that it would make a lot more sense to pay off your debt first, particularly if it’s a high interest credit card debt, could a case be made to also increase your savings as well?
Jonathan Pond, writing for Ponderings:
There’s a lot of discussion about the heavy indebtedness throughout our society, the federal and state governments (the clear leaders), corporations, and families. While the governments seem compelled to run up even more debt, individuals and families are equally intent on paring back their debt. That leads to the dilemma of whether it’s preferable to pay off debt or add to your savings. As in most aspects of our financial lives, this is not necessarily an either/or decision. It’s often preferable to do a little of both, even though it may take you longer to pay down the debt. On the other hand, you don’t want to take a long time to pay off high interest debt, notably credit cards. Here’s are two suggestions: if you are saddled with high interest debt, plan to take two-thirds of any money you have available after paying your other bills and put that toward the high interest loans. The other third will be earmarked for savings, ideally putting that money into a retirement savings plan. If you keep low or zero credit card balances, but you’d like to pay down your mortgage or home equity loan, earmark one-third to one-half to debt reduction with the rest in savings. High debt has harmed many families in this country. While economists aver that a strong economy is dependent on consumer spending, it’s far more important for you to improve your good financial standing than help prime the economy.
What’s everyone’s thoughts on this? I still think the case could be made that it makes more sense in many ways to have your debt paid off first as Dave Ramsey likes to advocate for in his books, but I’m curious how many out there also save at the same time while paying off debt? Certainly if you’re wanting help in paying off debt and budgeting, I still recommend looking into Undebt.it as well as YNAB (get a free 34 day trial).
Leave a comment below with what strategies have worked for you, and you might get a shout out in a future post or podcast episode!