Should I Pay Off Debt Or Save Money?
If you’ve got debts hanging over your head, then you might be feeling torn between paying them off or putting money away for an emergency. Paying off debt is important, but so is building a financial cushion for emergencies in the future. Should you pay off debt or save money?
In general, you want to wipe out high-interest debt first using the debt snowball or debt avalanche before you focus on saving since the repayment of some debts can cost you extra money.
There’s a lot of merit to building an emergency fund for a rainy day, but you also want to try and wipe out those debts as quickly as possible to find a balance between savings and debt repayment. The rest of this article will seek to answer the question of whether you should pay off debt or save money.
Should You Pay Off Debt Or Save?
It is important to begin to pay off your debts first. If you’ve got several debts you need to pay off, it can be easy to be overwhelmed by them all. The most important thing to remember is that the more money you put into your debts, the sooner you can be debt-free for good.
As such, you want to either employ the debt snowball or the debt avalanche method to start paying off your debts.
The Debt Snowball
Popularized by Dave Ramsey, the debt snowball is an effective way to tackle your debts. To utilize it, start by putting as much money as you can towards your smallest debt to get it wiped out as quickly as possible while still paying the minimum for the rest of your debts.
Once you’ve cleared your first debt, you can start focusing on the next smallest debt, allocating the money you were paying towards the first one onto the next one, and so on.
Over time, you’ll find that you have a lot more money to put towards those massive, looming debts to wipe them out a lot faster and save yourself some money in the process.
The Debt Avalanche
The debt avalanche works in the opposite direction. Start with your biggest debt and put as much as you can towards it each month. Once that major burden is relieved, you will have a great deal more money to put toward your next-largest debt.
It’s important to note that you should combine both the debt avalanche and the debt snowball method with a keen eye for interest rates. If you’ve got a high-interest debt that’s eating away at your budget, tackle that as one of your primary goals.
You may also want to consider looking into debt relief programs to see if you’re eligible.
What To Do Along The Road
As you progress with handling your debts and they become more manageable, your next step is to start saving and balancing your savings and debts.
Once you’ve got it under control, you can work towards building up a bigger safety net in your savings account or 401k to save for retirement. In general, you want to operate by the 50/30/20 rule.
Using this method, 50% of your income should go towards essentials like groceries, gas, and bills.
30% of your income goes into your wants, including your entertainment and purchases. Lastly, the 20% remaining goes into your remaining debts and savings.
Depending on how far along the road you are, you may want to consider reducing the wants category to put more money into your debt repayment and savings.
If you find it difficult to actively manage your money and reduce frivolous spending, consider the pay-yourself-first method, in which you set up a direct deposit to send some of your paycheck right into a savings account as soon as you get it. That way, your savings are already accounted for, making money management much easier.
Using A Title Loan To Handle Major Emergencies
One good use of a title loan is handling medical emergencies or major repairs that need doing.
If you’re struggling to handle debt and save at the same time, then you might not have the money on hand for important things that you need to maintain the safety of your home or conduct necessary repairs for your car. That’s where Southwest Title Loans can help you, with vehicle title loans up to $15,000 for your needs.
Give Southwest Title Loans A Call Today
If you’re struggling to pay off debt or save, there can be emergencies that you’re just not equipped to handle. In that event, relying on Southwest Title Loans is an option to help you pay off those big bills before they become a hassle. For those trying to effectively pay off debt or save, a car title loan with Southwest Title Loans is a valuable resource that you don’t want to pass up!
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.