Should You Sacrifice Savings to Pay Debt Off?
Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.
I really think that those end of the world books became popular as an escape. Even if something awful happens, like a zombie invasion, it would still wipe out all of our creditors too.
But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.
Juggling Debt
Instead of paying it off today, is there a way to pay less interest for it? You may be able to find a lower interest rate on your loans. Credit cards could be moved to a friendlier company, and homes or cars could be refinanced. You may be shocked at how much lower your bills will be if you can reduce your interest rates.
Consider your credit cards. Some interest rates are really out of control, and many consumers report sudden rate hikes to twenty-five percent or more! If you carry $10K on your credit cards, and many people do, that means you have to pay $2,500 a year to service that debt! Even if you could just cut that rate in half, you would save twelve hundred and fifty dollars every 12 months.
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
If you set goals you will never meet, you will never do yourself any good either. A thousand dollars toward debt, that never actually gets paid, will do you no good.
Evaluate Loans vs. Investments
Do you have a fairly good home loan with a lower interest rate? Do you also have a way to save your money that pays high returns? Then you do have to consider that you may be able to deduct the home loan interest, but have to pay taxes on your savings. In this case, you will probably do well to leave things alone.
You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction.
Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.
I really think that those end of the world books became popular as an escape. Even if something awful happens, like a zombie invasion, it would still wipe out all of our creditors too.
But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.
Juggling Debt
Instead of paying it off today, is there a way to pay less interest for it? You may be able to find a lower interest rate on your loans. Credit cards could be moved to a friendlier company, and homes or cars could be refinanced. You may be shocked at how much lower your bills will be if you can reduce your interest rates.
Consider your credit cards. Some interest rates are really out of control, and many consumers report sudden rate hikes to twenty-five percent or more! If you carry $10K on your credit cards, and many people do, that means you have to pay $2,500 a year to service that debt! Even if you could just cut that rate in half, you would save twelve hundred and fifty dollars every 12 months.
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
If you set goals you will never meet, you will never do yourself any good either. A thousand dollars toward debt, that never actually gets paid, will do you no good.
Evaluate Loans vs. Investments
Do you have a fairly good home loan with a lower interest rate? Do you also have a way to save your money that pays high returns? Then you do have to consider that you may be able to deduct the home loan interest, but have to pay taxes on your savings. In this case, you will probably do well to leave things alone.
You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction.
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