Whether you got your taxes done a little early and are expecting a refund to come your way – or you simply have a little extra cash on hand, one common conundrum that many Americans face (when it comes to trying to improve their own financial health) is whether to use that extra money towards building their savings account or towards paying down their debt. While the best decision will invariably depend on a person’s specific financial state, the following outlines some questions to ask yourself in order to figure out what may be the best option for you.
How much money do I already have in my savings account?
If the answer is none, then it’s generally the smartest idea to start building a savings account as soon as possible. Not having a savings account when something like an expensive car repair bill or a medical bill pops up (especially if you find yourself out of a job) can quickly catapult you into debt and start the snowballing effect of debt ballooning out of your abilities to manage it.
Some financial experts have estimated that a minimum safe savings cushion that U.S. consumers should keep for themselves is $1,000 (though, of course, you want to strive to have a savings that is as large as possible). Therefore, if you don’t have a savings account at all or if your savings account is well below the minimum $1,000 suggested by many financial professionals, strongly consider investing your extra funds in your savings – it is an investment in your future.
How much debt do I have?
While investing in your savings is never a bad idea, the consideration of how much debt you are currently carrying is nothing to shrug off. Even if you don’t have a savings account at the moment, when deciding whether to use some extra cash you have towards investing in your savings or paying off debt, it’s critical that you take a close look at your debts and ask yourself how much you owe in total. If you are like many Americans, it’s quite possible that you owe tens of thousands of dollars in credit card bills, car loans, student loans and maybe even mortgage loans.
When this is the case, debtors should be aware that their dollar will go further when paying off debt instead of investing in savings. This is because interest rates associated with debt will ultimately increase the debt owed more than the interest rates associated with savings accounts will boost the principal of the savings account. In other words, if you invest $100 in your savings account, that money will only have a minimal return for you (maybe even just pennies); however, if you put that same $100 towards paying down your debt, you could ultimately save more money because you will now be paying less interest on your debt in the future.
Look for our upcoming second part of this blog for the final two important questions to ask yourself when you are trying to figure out whether it’s better for you to put your extra cash towards building your savings or paying down your debt.
Colorado Bankruptcy Lawyers
If you are overwhelmed by seemingly insurmountable debt and are looking for a financial fresh start, contact the trusted Colorado debt relief and bankruptcy lawyers at the Law Office of Jon B. Clarke, P.C. For more than 35 years, Mr. Clarke and his diligent support staff have been successfully helping our clients resolve even the most complex bankruptcy cases for both individuals and businesses alike. Our experienced legal professionals are committed to providing each of our Clients with the personalized debt relief assistance they need, and we will work tirelessly to ensure that our Clients’ cases are resolved as favorably and efficiently as possible.
For a thorough assessment of your situation, along with expert advice regarding the best manner in which to move forward to unburden yourself from debt, call us at (866) 916-3950 or email us some details about your situation by clicking here.