Should You Pay Off Debt or Save Money?
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Making the decision to pay off debt or save money can be difficult, especially if you have a limited income. Both options have benefits and drawbacks, so it can be tough to decide which one is right for you. In this blog post, I'll discuss the pros and cons of each option and help you decide which one is best for your unique situation!
Pay Off Debt
Pros
If you have high-interest debt, paying it off sooner will help you pay less interest in the long run. The quicker you can get rid of this debt, the less money you'll end up paying in interest. Additionally, paying off debt can help improve your credit score and give you peace of mind.
Paying off debt will also free up money for other things. That debt payment you no longer have to make can go towards something else.
Cons
It may be hard to believe, but there are some drawbacks to paying off debt as well. For example, if you have a low interest rate on your debt, you may be better off investing your money and earning interest at a higher return. Additionally, paying off debt can take a long time, especially if you have a large amount of debt.
Save Money
Pros
One of the biggest benefits of saving money is that it gives you a financial cushion to fall back on in case of an emergency. Additionally, saving money can help you reach your long-term financial goals, such as buying a house, retiring early, or saving for a large purchase like a vehicle.
Cons
Of course, there are some drawbacks to saving money as well. (Again, that's hard to believe, I know). As mentioned previously, if you have high-interest debt, you may be better off using your extra money to pay it off instead of putting your money into savings. Additionally, saving money can be difficult if you have a limited income and will be penalized for not making your debt payments.
So, what's the verdict? Should you pay off debt or save money? The answer, as you might have guessed, is that it depends on your unique situation. If you have high-interest debt, paying it off should be a priority. However, if you have a low interest rate on your loan and you are able to save money each month, you may be better off investing your money where it will earn more interest than what you are paying on your debt.
Ultimately, the decision is up to you and should be based on your specific financial situation and what you're comfortable with!
Can you do both when you have limited income?
Of course, you always have the option to both pay off debt and save money. If you have a limited income, this may mean making sacrifices in other areas of your life, such as eating out or going on vacations. However, if you're able to stick to a budget and make some changes in your spending habits, it's definitely possible to both pay off debt and save money.
When I was drowning in debt and contemplating bankruptcy, I first started by focusing on my debt. Money was just too tight to do anything else. Once I paid off one of my loans, I pretended as if I still had to make the payments. This amounted to $400 per month. Some months I took the full amount and put it into savings. Other months, I used the money to make an extra payment on one of my other loans.
Again, it all depends on your unique financial situation and what you're comfortable with. To learn more about my debt story and how I gained control of it, check out my Prosperity Planner where I discuss my TREE method of managing personal finances.
