Reduce Debt or Increase Savings – Which One First?
When taking into account the twin problems of putting away for savings and reducing debt, many times we’re faced with a choice of which one is or should be the priority.
Normally at this point of the conversation, people will immediately say they can’t do one or the other, because debt is taking every penny they have; making it impossible to build at least a fund up for safety in case of a financial emergency.
It’s the old catch-22 many people face, and yet, a lot of people have escaped this seeming trap they’ve fallen into, and so can you.
In this post we won’t deal with all the practicals, as we must deal with something else first, and that is making a decision on whether to pay down your debt or build up a savings.
Almost everyone can go through their finances and find places they can cut back on in order to release up some money to put away to build up at least a small nest egg.
The question becomes then, should that extra money be put into savings or paying down debt. I believe putting away for savings should be the first step; at least until you have enough for some minimal financial protection.
Paying down debt is a huge psychological boost, and a priority, but if you don’t have something put away, you’re one major, or even minor, event away from losing just about everything.
For the most part having a nest egg or savings account is for safety purposes for an unforeseen financial challenge which could lead to you struggling to manage your debts
If you’re paying down your debt but lose your job, you may have less debt, but you will have an entire different circumstance to deal with if you’re desperate and have absolutely nothing to fall back on.
This is the reason I think we should all have savings as a priority, while continuing to pay down debt at minimal levels until we do. At least get something put away first, and then work from there on the debt.
Once a fund is financed some, you can then possibly split the amount and slow down on the savings fund in order to start relieving yourself of some of your debt.
Try this and I think you’ll feel a lot better and prepared for what comes in life for you. If you have significant debt, it’ll take time to pay it down no matter what you do, so focusing on savings first should be the priority, with paying down debt right behind it.
Obviously if you have enough extra money a month to do both, that would be the best situation. But most don’t, and if you have to choose, I would suggest the savings first and the debt second.
Tags: debt, saving strategies
