Should You Pay Off Debt or Stash Cash?
1:59 AM
Will Paying off Debt Help Finances.
I guess most of us dream about living without debt. If you are like me, you sit down and pay bills, and think about how much money you would have if you did not have to service credit card bills, car loans, or a mortgage. Maybe a picture of a shack on an island even comes to mind.
Have you ever thought about end of the world movies and stories? I think that people like them because they can picture a life without debt, even if something really awful has to happen.
But are we better off without debt, or should we had onto cash? I think the answer is complex, and like most things in life, it depends.
Consider Changing Your Debt
Maybe you can improve your debt situation even if you cannot eliminate it. It is tough these days, but many people can still find offers for better interest rates for credit cards. Even a few percentage points lopped off, can save you hundreds of dollars every year.
Try to pay off high interest credit cards if you can. Some credit rates are just crazy these days. People are getting notices that their rates are rising to 25 percent or more! Even a fairly low balance of $4,000 can cost $1,000 a year just to service!
Keep Your Emergency Fund
In your efforts to pay down your credit cards and loans, try not to neglect your savings or investment accounts. Emergencies happen, and you do not want to have to depend upon even more credit. If you do need to deal with a health emergency or make a sudden trip, you want to be able to have some cash.
Try to Stay The Course
You need to have a goal, and a way to reach that goal. Consider putting an extra fifty dollars toward paying off loans, and then allocating an extra fifty dollars toward your emergency fund. Even a modest amount is better than nothing.
But if you plan to use $500 to pay off debt, and then never get around to actually doing it, you will not help yourself.
Balance The Interest Rates on Investments, Savings, and Credit
A person with a lower interest rate on their home, but who also has a higher interest rate savings account, may do better by paying off their mortgage the slow way. If they pay six percent on a home loan, plus get a tax deduction, this will probably be better than breaking into a high rate investment account.
Also consider taxes. You can deduct mortgage interest, but you have to pay taxes on your gains.
I guess most of us dream about living without debt. If you are like me, you sit down and pay bills, and think about how much money you would have if you did not have to service credit card bills, car loans, or a mortgage. Maybe a picture of a shack on an island even comes to mind.
Have you ever thought about end of the world movies and stories? I think that people like them because they can picture a life without debt, even if something really awful has to happen.
But are we better off without debt, or should we had onto cash? I think the answer is complex, and like most things in life, it depends.
Consider Changing Your Debt
Maybe you can improve your debt situation even if you cannot eliminate it. It is tough these days, but many people can still find offers for better interest rates for credit cards. Even a few percentage points lopped off, can save you hundreds of dollars every year.
Try to pay off high interest credit cards if you can. Some credit rates are just crazy these days. People are getting notices that their rates are rising to 25 percent or more! Even a fairly low balance of $4,000 can cost $1,000 a year just to service!
Keep Your Emergency Fund
In your efforts to pay down your credit cards and loans, try not to neglect your savings or investment accounts. Emergencies happen, and you do not want to have to depend upon even more credit. If you do need to deal with a health emergency or make a sudden trip, you want to be able to have some cash.
Try to Stay The Course
You need to have a goal, and a way to reach that goal. Consider putting an extra fifty dollars toward paying off loans, and then allocating an extra fifty dollars toward your emergency fund. Even a modest amount is better than nothing.
But if you plan to use $500 to pay off debt, and then never get around to actually doing it, you will not help yourself.
Balance The Interest Rates on Investments, Savings, and Credit
A person with a lower interest rate on their home, but who also has a higher interest rate savings account, may do better by paying off their mortgage the slow way. If they pay six percent on a home loan, plus get a tax deduction, this will probably be better than breaking into a high rate investment account.
Also consider taxes. You can deduct mortgage interest, but you have to pay taxes on your gains.
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