If you are trying to decide whether to use extra cash to pay down debt or build your savings, consider whether you have enough cash to do both.
Continuing from Is It Better to Save or Pay Off Debt? (Part 1), the following discusses two final – yet essential – questions to ask yourself if you are trying to figure out whether it’s a better fiscal decision to use your tax refund, annual bonus or any extra chunk of cash towards paying down your current debt or towards building your savings account.
What is the highest interest rate I’m paying?
This is perhaps one of the most critical questions to ask yourself if you are making a choice between paying down your debt or investing in your savings account. If the interest rate on your debt is relatively low, then focusing on investing in your savings can be a better idea because not putting the money towards your outstanding debt won’t end up costing you a lot more money in the future (and having a savings will increase the likelihood that you won’t have to accumulate more debt if an unexpected expense arises).
Conversely, however, if you have any debt with a high interest rate – or even with a moderately high interest rate if the debt is substantial, your primary concern should likely be paying down this debt because not doing so will cost you more in the long run.
Is it possible to pay down some debt while also investing in my savings?
Ultimately, the question of “Is it better to save or pay off debt?” should be changed to the statement of “It’s best save AND pay off debt.” This means, if possible, put some money towards building your savings while paying down (or off) your debt with the highest interest rates when you have some extra money on hand. While your dollar will typically go further when it comes to paying down debt (especially debt associated with higher interest rates), seeing the balance on your savings account start to increase can be psychologically (not to mention financially) rewarding, and it can help to continue to motivate you to make fiscally responsible decisions in the future.
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.
