My Husband wants us to put more towards savings but i want to put more towards our debt. I will like to have to paid off asap. Right now we are putting 700-1200 towards debt a month. But with us putting that most towards debt it will be paid off the summer of 07. Should I cut it down or keep it the same? Also to note we do save each month but not that much as we would like.
2006-07-03 11:20:31 · 19 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
It depends on whether you're saving for a short-term buffer against unforseen circumstances or saving for the long run. If the former, it might be a good idea to have some liquid savings put away, just in case you need it. If the latter, it's **probably** better to pay off your debts first, but not necessarily. Consider the interest you're paying on your debts and compare it to the interest or return you would get on your savings. Put the discretionary money where the number is higher--it makes little difference which. A penny saved is a penny earned!
2006-07-03 11:25:10 · answer #1 · answered by The Nerd 4 · 1⤊ 0⤋
It depends (how do you like that for an answer?!). If the debt that you're referring to is credit card debt, I would say pay it down as quickly as possible. Think of it this way-if you're paying 18% interest on a credit card balance, you would need to find an investment that earns a yield well beyond 18% in order for the use of the money to be "equal". Seeing as there are no such investments like that, pay down the credit card debt. If we're talking about a 5.5% mortgage, well, that's a different story. You could easily find a greater investment yield than 5.5%. See where we're going with this?
As something of an exception to this, though, would be if you have a 401(k) matching program available to you that you aren't utilizing. My advice then would be to contribute as much as possible up to the point where the employer no longer matches the contributions, then any extra money should be used to pay down the debt.
By the way, congrats on the great effort of paying down $700-$1200 a month in debt. It certainly sounds like your on the right track to a sounder financial future.
2006-07-03 11:30:21 · answer #2 · answered by SuzeY 5 · 0⤊ 0⤋
By debt, I presume you mean debt other than house mortgage. Then consider the interest your paying each month for the unpaid balance on your debt (what is it, 10-12% or more?) and compare that to what your making on the money in your savings account (something like 4-5% at best?) Pay the debt. Afterwards, change your lifestyle and start saving.
2006-07-03 15:11:58 · answer #3 · answered by nothing 6 · 0⤊ 0⤋
The answers you got (regarding the differing interest rates between debt and savings) are generally true. If you don't have $1000 in savings (to cover emergencies), do that first. Then pay off the debts (except mortgage), then max out savings (emergency fund and then retirement), then pay off the house.
Dave Ramsey has some interesting info in both his books, "Financial Peace" and "Your Total Money Makeover" with graphs to back it up. If you only have a year left before you are debt-free, get rid of the debt, then save like crazy.
2006-07-03 14:45:56 · answer #4 · answered by homeschoolmom 5 · 0⤊ 0⤋
The sooner your debt lowers, the sooner your credit score will increase, and that's very important to doing a lot of things, like buying a house or applying for credit cards. Unfortunately, most straight savings accounts don't have a great interest rate, so you're really not making that much money. If it's only another year until your debt is paid off, I would allocate as much money as you possibly can to getting rid of it. One more year where you don't save a lot of money is not that long in the scheme of things. Good luck!
2006-07-03 11:25:14 · answer #5 · answered by Eebles 2 · 0⤊ 0⤋
You should put it towards your debt because it is simple math. If you put it towards your savings you will make at most 4%, while you are probably getting charged atleast 10% on your debt. So pay your debt if not the interest will eat up all your money.
2006-07-03 11:26:24 · answer #6 · answered by ? 2 · 0⤊ 0⤋
If the interest rate on the debt is higher then on your savings...most always is...then you should pay the debt off first because if you do not you are losing money on interest~
2006-07-03 13:54:21 · answer #7 · answered by dahublaz 4 · 0⤊ 0⤋
get rid of the debt, then ALL of it can go to savings.
Earning high yields in various investments while in debt (it will pay the debt interest _for_ me!) is what's called playing with snakes.. You will get bit, because that is risk (one check to a credit card gets lost in the mail, you are late, they jack your interest rate -- or your mutual fund investments suddenly take a turn for the worst). 70% of people live paycheck to paycheck, they shouldn't be playing that game. get debt free, your life will be simpler, you'll have peace of mind. then you can put your money to work for you..
2006-07-03 11:43:25 · answer #8 · answered by kvuo 4 · 0⤊ 0⤋
it will depend on what debt and how much you earn...if for real estate then you can put more.then you can make money from it.the price is hard to decrease.but you should have saving.the most important thing is to save the money you earn.by the way why not invest the money
2006-07-03 12:16:00 · answer #9 · answered by afzan 1 · 0⤊ 0⤋
If you are paying more interest on your debt than you would earn on your savings, then you're better off paying your debt.
2006-07-03 11:27:30 · answer #10 · answered by cdogzilla 2 · 0⤊ 0⤋