which is better in the long run, pay off debt or build savings?

Question

my husband and i are starting to hit that point where we have some extra money after all the bills & necessities are paid for .. we will be buying a house the first of next year and we really want to know which will work better for us in the long run..
we have about 10k in debt.. i think we should pay off as much as that so it will improve our credit score, get us a better intrest rate and elliviate those bills once we have a mortgage..
he says we shoud put everything extra into a savings account that earns 1-2% interest and either use that as a down payment or buy point on our interest to keep it lower
keep in mind we plan to do both, to a degree, but we aren't sure which one to focus more on.. pay off more debt or put more into savings..

Answer 1

Logic says that you should do the thing that will save you the most money in the long run. This usually means that you will want to pay off the higher interest items first before saving at a lower rate. However, it is not black and white. It depends on things such as how your debt is distributed, and how paying off a debt effects your debt to income ratio.

You should first get your credit score and find out what it is. This may dictate what you should do. If your score is high enough paying down debt may not get you a better rate. If it is average, then paying down debt may get you a higher rate. But you won't know where you stand until you find this out.

If you find you need to increase your score, the one thing that will help the most is to pay down your credit card debt. Ideally you should not be using more than 30% of your total credit limit. The higher above that you go the more of a negative effect it has on your score.

Also, for the savings you can find several banks that give better than 1%-2% interest rates. I know that if you go with Washington Mutual(WaMu) and open an account on-line you can get 5%. That is still not great but much better than 1-2%. So before you put money into a savings account shop around for better rates.

Answer 2

PAY OFF DEBT!

I would allocate the largest portion of the extra to paying down debt while also saving some of that extra money.

And get a better interest rate on your savings. There are quite a few options where you can earn 5% or close to it

ING Direct
Emigrant
HSBC
Capital One
FNBO Direct

to name a few

You can ignore where it says Peoria, IL as most of those listed are nationally available

Answer 3

I think you're right by paying your debts first,this
way you'll be avoiding any more interests.
keeping the money in a saving account will not bring much because the economy is bad today
But if you have a lot of cash,then you should consider a CD account which is a lot secure &
is safer than the stuck market .you have a choice from 3 , 6 , 9 , 12 , 18 months & up
it depends when you'll need the money but it's
a lot better than saving account because you'll be making more money and it's fixed rates until the the muturity date.
Good luck

Answer 4

Pay off the debt. The interest rate on the debt is way more than that interest on savings.

You are correct that a better score will get you better interest rate on the mortgage. It's also better to NOT have those debt payments when you move into that new home.

Answer 5

If you pay 8-10% on your credit card and get 1% in saving. I say pay off your card first. It will help you to improve your credit score and after you paid off, start saving for your new house.
Pay off your debt first, buy CDs that pay higher interest instead of savings. Besides, buying CDs, you can't take the money out until it matures. That way, you won't dip into your savings.

Answer 6

It all depends on whats more important for you.

If you are trying to save for a house or car ect ect, then putting in the savings is more important. You can still get a house with a debt, but you normally need a sizeable down payment.

If you dont really need a large savings at this moment then you shoudl pay off some of the debt.

Answer 7

in case you are able to in basic terms have the money for the minimun money each and each month, then i could beg to selection along with your assessment of the area; you're in dire straits! It probable does not seem that thank you to you because of fact maximum folk stay their lives that way! that doesn't make it top... you may choose, yet i'm able to promise you will stay to critically be apologetic approximately it in case your cash out of the Roth or any retirement account. incredibly considering you're in basic terms 34. in case you do no longer choose to provide up the cable (LOL), then get a 2nd job and devote ALL of those earning to paying off the debt. decrease each and every of the enjoying cards up. repay the smallest stability first (mathematically this would possibly no longer make experience, even nonetheless it will make you experience as though it is not an impossible job), then the subsequent, etc.

Answer 8

Go by the interest rate you are paying out each month........I'm sure you are paying more than 1.2% interest..you are not gonna save enough for the 1.2% to make you much money......I would say PAY ON THE BILLS...........