Should I Pay Off Debt or Build Savings First?

pay-off-debt-or-savings-account

Pay Off Debt or Build Savings First?

CreditStryke

3201 Dallas Pkwy.
Suite 200
Frisco, TX 75034
(469) 708-0007

Have you ever wondered whether to pay off existing debt or build savings first?

You’ve budgeted, cut your expenses, and now — victory! You have a little extra cash at the end of each month. For countless people, the challenge is then deciding what to do with that extra money. You could pay down existing debt, or you could put the extra cash in a savings account. The answer depends on your circumstances.

Do You Have an Emergency Fund?

It’s always a great idea to have a financial buffer to be prepared for anything unexpected. If you unexpectedly lose your job or your car breaks down, you’re prepared. Consider beginning with a small goal, like saving an extra $500 for your emergency fund, and then build from there.

Have You Started a Retirement Fund?

Retirement may be a long way off for you, but it’s crucial to open a retirement account. It’s okay if you can only afford small sums in the beginning because the sooner you start saving for retirement, the better off you’ll be when it’s time for you to retire.

An excellent way to build your retirement fund is by participating in an employer-sponsored plan, like a 401(k). If your employer offers a matching 401(k), you definitely should take full advantage of it. Why? The matching portion is free money. For instance, let’s say you decide you’re able to contribute $25 a month. If your employer matches that amount, you’re depositing $50 a month in your retirement account for your $25 investment.

Another thing to be mindful of is that your retirement account will presumably earn dividends over a long period of time. And, those dividends will help your retirement fund grow larger faster. And, since these funds are tax-advantaged, you’ll be saving on taxes.

How Much Debt Do You Have?

Once you’ve established your emergency fund and began saving for your retirement, the next mark is to realize how much debt you have (e.g., student loans, auto loans, credit cards). Write down a detailed list of what you owe each creditor and include the interest you’re paying.

Here are 2 very simple ways to pay off your debt faster. The first method is to do your best to pay off the account with the smallest balance. The second simplest way to pay off debt faster is to work on the debt with the highest interest. You still make all your minimum payments before their due dates, but you add extra money to every payment made on the account you’ve targeted.

Quick Tip: To save money on interest while you’re paying off debt, look into whether you can transfer existing high-interest balances to a low-interest credit card. This will offer you the best of both worlds: you can plug away at your debt while saving money on interest. Be certain to record when the interest rate will go up on the chosen credit card if it’s a special offer.

How Much Debt Do You Have?

Once you’ve established your emergency fund and began saving for your retirement, the next mark is to realize how much debt you have (e.g., student loans, auto loans, credit cards). Write down a detailed list of what you owe each creditor and include the interest you’re paying.

Here are 2 very simple ways to pay off your debt faster. The first method is to do your best to pay off the account with the smallest balance. The second simplest way to pay off debt faster is to work on the debt with the highest interest. You still make all your minimum payments before their due dates, but you add extra money to every payment made on the account you’ve targeted.

Quick Tip: To save money on interest while you’re paying off debt, look into whether you can transfer existing high-interest balances to a low-interest credit card. This will offer you the best of both worlds: you can plug away at your debt while saving money on interest. Be certain to record when the interest rate will go up on the chosen credit card if it’s a special offer.

Let’s Recap

When deciding whether to use extra money for savings or pay off debt, focus first on having some savings and then chipping away at your debt.

  1. Make certain you have a sufficient emergency fund.
  2. Partake in a retirement plan.
  3. Adopt and follow a debt repayment strategy.

by creditstryke

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CreditStryke

CreditStryke
3201 Dallas Pkwy.
Suite 200
Frisco, TX 75034
(469)708-0007
1(800) 394-6768

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