I already know my decision. Which would you rather have?

Question

Would you rather have thousands of dollars saved up in the bank with an equal amount of debt

OR

No debt at all, but be completely flat on your as# flat broke.




I'd rather have that $20,000 in the bank with $20,000 of debt because at least I'd know that I've got some finacial security for emergencies and for my future.

Afterall, people have thousands saved up yet have thousands left to pay off their car. They don't pay it off all at once because they know it's better to have some security, AMI RIGHT OR WHAT?

Answer 1

I think you're right. You don't want to be in a situation where you have no money in savings. That being said, it would be ideal for you to pay off the debt as quickly as possible while maintaining the savings you currently have. I do pay for my cars in cash (although I only buy a new car about every 10 years), but doing so doesn't come close to depleting my reserves.

I've been thinking about this because I have enough in savings (not counting retirement savings) to pay off most of my mortgage, but I haven't done so because I like the security of having the extra cash available. Also, I'm earning more on my savings and investments than the interest rate I'm paying on my fixed-rate mortgage, which is another factor driving my decision. I do, however, pay extra toward the principal each month, because I will enjoy (for purely psychological reasons) finally having my house paid off.

Answer 2

I agree with you. People thrive on debt/leverage. Having no money and being debt free is not the best, especially when you want to take out a loan in the future. Cash reserves are more important today with so many people defaulting. Great credit scores are good, but what happens in an emergency and you need money? I do loans/lines/credit cards for people and what happens is that those who need it, can't get it. Think about it this way as well...the money you're earning in interest lessens the damage you're paying in interest. If you had debt down the road, but no earned interest to offset it, you're going to be paying more in the future. Does that make sense?! If you're equal, you can always make the decision in the future to pay it off.

Answer 3

I would rather be even. Because If I was debt free and had no money in the bank, my next paycheck would go to saving the $20k and every paycheck after that would go to save for the $20k emergency fund.

It is nice to have security but if you have no payments on any thing (debt free) then you are secure. Your next paycheck goes to an emergency or savings.

I suggest you read the Total Money Make Over by Ramsey.

Answer 4

It all depends on how much interest your are willing to pay to have the security you seem to want. Frankly, you're better off financially paying off the debt, thusly reducing your interest costs to zero. As long as you maintain a decent FICO score, you should not have any issue returning to a debt status should the need arise.