Should I Pay on Debt or Save Money?
Should I Pay on Debt or Save Money?
Personal Debt Management Services in New Westminster, BC
When you’re fortunate enough to have some extra money, knowing what to do with it is critical. Two of the most logical things you can do with your money are to save it and to pay off debt with it. Paying off debt makes sense for a lot of reasons, but so does saving up cash. The trustees at J. Bottom & Associates Ltd. offer personal debt management services in New Westminster, Port Coquitlam, and North Vancouver, BC. Managing debt is critical if you want to be successful financially. Learn more about the pros and cons of paying off debt and saving money to determine which strategy might be best for you. Don’t hesitate to get in touch with us for a free consultation.
The Argument for Paying Off Debt
Many experts and those who have done it will tell you that paying off your debt first makes the most sense. Most debt comes with interest, and the sooner you get it paid off, the sooner your money will be freed up. Becoming debt-free feels fantastic and opens up a whole new world of financial possibilities. Paying high interest rates can make it challenging to manage your expenses and leave you feeling strapped for cash. The first thing you should do in either scenario is to create a budget and determine your expendable income after necessities such as food, bills, etc. Look for any regular expenses you can eliminate, and find out how much money you can put toward paying off debt. Paying off debt can improve your credit score if you’re in the market for a mortgage or a car. Keep in mind that a credit score is only an indication of how good you are at paying back the money you’ve borrowed, and once you get out of debt, you should avoid going back into it if at all possible.
The Argument for Saving Money
While paying off debt makes sense for many reasons, most people’s fears make them think that saving money is the better option. A financial cushion is important for emergency situations, but sometimes saving up too much money while you’re still paying high-interest rates on debt is not the way to go. An emergency could cause you to go back into debt if a credit card is the only resource you have. The experts recommend building up a small emergency fund before you begin paying off your debt, but $1,000 is usually enough to cover most car repairs and other unplanned expenses. After that, you can start paying off your debts, and then you’ll want to come back to piling up cash for a more long-term emergency fund of three to six months of expenses. Instead of just saving up cash under the mattress, look into solid investments such as a 401(k) match program from your employer.
Taking a Balanced Approach
Paying off debt and saving cash both have advantages, and you can combine the best of both worlds. Some people find a balanced approach to the best way to approach the “problem” of having cash they don’t know what to do with. Paying off debt and building a small reserve for emergencies is an excellent approach. As previously mentioned, you may want to start with a small emergency fund and then focus on paying off debt. Once you become debt-free, you can build a more significant emergency fund to keep you from going back into debt for any unplanned expenses. Imagine how comfortable and secure you will feel with no debt and a large emergency fund.
Get Your Free Debt Consolidation Consultation
The experienced trustees at J. Bottom & Associates Ltd. are here to help you improve your financial situation. We offer personal bankruptcy, debt consolidation, consumer proposals, credit counseling, and other legal financial services in New Westminster, Port Coquitlam, and North Vancouver, BC. We want to help you break the debt cycle, and there is no such thing as a silly question to us. Contact us today to schedule your free consultation.