Should You Pay Off Debt or Stash Cash

Will Paying off Debt Help Finances?

Most people would love to live without any debt. We dream about the day we can burn our mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.

Have you ever thought about end of the world movies and stories? I think that people like them because they can picture a life without debt, even if something really awful has to happen.

But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.

Consider Changing Your Debt

Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.

Look at high interest rate credit cards. It is not unusual to see 25% interest rates these days. If many Americans carry $8,000 in debt, that means they have to pay $2,000 just to service it. If you could reduce that interest rate to 12.5%, you could save $1,000 every year without working any extra hours.

Keep Your Emergency Fund

In your efforts to pay down your credit cards and loans, try not to neglect your savings or investment accounts. Emergencies happen, and you do not want to have to depend upon even more credit. If you do need to deal with a health emergency or make a sudden trip, you want to be able to have some cash.

Try to Stay The Course

You need to have a goal, and a way to reach that goal. Consider putting an extra fifty dollars toward paying off loans, and then allocating an extra fifty dollars toward your emergency fund. Even a modest amount is better than nothing.

Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plan to set aside five hundred dollars, and then you never get around to it, you will not be better off.

Evaluate Loans vs. Investments

A person with a lower interest rate on their home, but who also has a higher interest rate savings account, may do better by paying off their mortgage the slow way. If they pay six percent on a home loan, plus get a tax deduction, this will probably be better than breaking into a high rate investment account.

Also consider taxes. You can deduct mortgage interest, but you have to pay taxes on your gains.

You can still find ways to Transfer Credit Card Balances to reduce your monthly payments. We also provide free financial calculators to help you make the best financial decisions. Get a totally unique version of this article from our article submission service