It’s the age-old question: Are you better off eliminating your debt or saving up for your future? Ah, if only there was a simple answer! Unfortunately, there’s no obvious choice between the two. However, you can decide which is better for you and come up with financial goals to further your fiscal future.
Why Not Just Pay Off Debt?
If you’re facing super-high interest rates, it’s only logical that you should knock that out before worrying about your savings. After all, you might earn a bit of interest in a savings account, but your debt could be racking up crazy interest every month you don’t pay it off in full.
However, simply focusing on paying off your debt leaves you unprepared to face an emergency. If you’re unable to work or just need to have some cash on hand for an emergency situation, you could be in big trouble without a savings safety net. Without some money saved up, you’ll only have credit cards, putting you further in debt. See the problem?
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Your credit cards come with minimum payments for a reason, and the rest of your cash should go into your savings, right? Wrong! Paying only the minimum balance and chucking the rest into savings can seem like a good idea, especially if you’re approaching retirement, but if you’re not careful, you’ll retire with debts.
Sticking with the minimum payment amount on your debts means you’re throwing away money at interest. You’ll never see that cash again. Here’s a fun factoid: Banks want you to pay interest. That’s where they make their money. By paying simply the minimum payment, you’ll wind up paying far more in interest than if you paid just a little extra each month.
Find Your Balance
Debt, much like juggling, is all about balance and manipulation. You’ll need to manipulate your finances to find the right combination of debt repayment and savings. What you do with your cash depends on what your debts are, how old you are and what your retirement savings goals
Once you pay off the lowest balance owning, add that payment to the minimum payment of the next lowest balance. For instance, if you were paying $300 a month on your last balance, and you are paying $66 on your newest lowest balance, then start paying $366 on your newest lowest balance. That 's $300 more than you were paying, and it will increase the speed at which you pay off that
After that balance has been paid off, you are able to place not only the extra money each month, but now also the minimum balance of the first debt you paid off. You complete this process for each of the balances going down the list. As you, pay off one debt the amount that you have available each month will increase and you will begin being able to pay off other debts quicker.
Over-Utilisation of Your Credit Card Limit: People often over utilise their credit card limits and this result in a high credit balance in their account. High balances on credit cards are also a cause of low credit scores. It is always better to pay your credit card bills every month. If you are not able to control your spending habits, then it may make sense to go for a card with a lower limit. This way, you will not build up a large debt and easily be able to pay all your dues. Another thing to note, credit card bills have a minimum sum to pay along with the overall outstanding. If you are unable to pay off the total amount you owe, it makes sense keep paying the minimum amount due until then.
I asked her did that sound familiar? Now we began the discussion on her Financial DNA Personal Environment appraisal. It was of importance for Janet to understand the effects of one’s environment and how this was the first step in resolution by developing strategies to move forward (Massie, 2006, p. 144). I informed Janet that implementing a strategic debt pay-down as part of the actual budget and financial plan was her in road to financial stability. Janet welcomed this idea and felt now was the time to correct her thinking and approach to financial decisions. I suggested that we apply the spend down plan in accordance to Dr. David Murphy (n. d) in the lecture Spending and Debt on alleviating credit card debt. Dr. Murphy (n. d) asserts, “Pay off smallest first. Once smallest is paid off, add that payment to second debt. Once the second debt is paid off, add that payment to third debt, etc. until all debts are paid (p.
For debt, it begins with a simple late or missed payment. These missed payments allow companies to punish card owners without discretion. With this, lenders hike up interest and payments on their customers for negligence, regardless of what their reason may be. Whether it was a tough month for the family or someone died and expenses had to be payed, lenders do not care one bit. From 2013 alone, student debt was at 1.21 trillion dollars, and mortgage standing at a whopping 7.9 trillion (Miller, R. K., & Washington, K. (2014). These loans also feed into why we as a country are in debt, which currently stands at seventeen trillion. These missed payments also greatly affect interest rates from lender companies. Companies wait for payments to come late, which allows them to impose fees and hidden charges that must be paid along with the delinquent payment. With increased rates comes...
credit card, next, let’s see why you need to pay off your balance in full every month.
(Ramsey 108). Making sacrifices with your money now, will make your hole of debt that much less. The less you have to worry about debt, is the more you can focus on you. Around 30% of student loan borrowers have dropped out of college and have to continue paying the debt with just a high school graduate salary.
Fewer people are saving money. Instead, they rely on the plastic. However, the average credit card holder pays $1200 in credit card interest. You would think that those individuals would figure this out and start putting that $1200 into saving for “emergency purposes only”. It seems odd that so many people say that their credit card debt is nothing they worry about.
There’s a lot more to being in debt aside from the fact that you owe more than you currently own. In addition to having balances that you need to pay, you also have to deal with calls from collectors or reminders that the bill is overdue — every single day. This alone is enough of a nuisance to make one want to run away from the debt and forget about it. Fortunately, there are ways to solve the problem of debt. One of these is debt settlement.
Why has our generation become so immersed in debt? Student loans are a major contributing factor. 40 million Americans now hold student loan debts (The Institute). In 2014 the average student loan debt per student was $28,950 (The Institute). However these numbers are declining, student loan debt is and has been continuously rising each and every year. If a student wanted to pay off their $28,950 of debt off in 5 years they would have to pay $559.68 month. To put this in perspective, 559.68 is more than the average car payment. Even if students wanted to pay off their loan in 10 years they would still have to pay $321.40. This is 10 years of hard earned money that students will never get to see because of the cost of education.
A lot of lessons have been learned this past decade. The biggest lessons Americans have learned about is how to save money, to be more money savvy and not to keep our heads buried in the sand. In truth, we are saving more than ever before, or at least trying to. We, however, have many hurdles and ills i...
Is there a way to eliminate student debt? Student loan is becoming a serious problem nowadays. A lot of college dropouts are buried under thousands of dollars of student loan. Some believes student debt crisis is rising due to high tuition, while colleges and universities blame high tuition on insufficient state support. Rising student debt is affecting people’s health, and it is delaying their further higher education. Student debt is an issue affecting Americans of all ages, so to solve this crisis the interest rates should be lowered, federal and state government should contribute more to lower tuitions and employers should somewhat participate in student loan repayments.
There are many people who assume that they can just pay the payments every month and not think about the loans. Although they will eventually be paid off, paying a lot of money towards your student loan debt will reduce the total interest that is paid over time. There are a lot of people who do not realize just how much interest must be paid into their loans in order for them to go away. The good news is that it really does not take a long time to pay off your student loans if you are committed to doing so. Final
Works Cited Cesneros, J. (2017, September 16). (U. Kaina-Freitas, Interviewer) Credit Card Debt What You Need to Know. (n.d.).
In conclusion, the best way to manage your money is to keep a budget and record all your transaction to see where your money is going. Living with a budget isn’t the easiest thing in the world, but it can be a great alternative to worrying about how you are going to pay for your expenses. Budgeting allows you to create a spending plan for your money; it ensures that you will always have money for the things that are important to you. Following a budget will also keep you out of debt. If you don’t balance your budget and spend more than you make, you will have financial problems. Many people don’t realize that they spend more than they earn and slowly sink deeper into debt every year.