Which is better? Paying off debt or saving money
A lot of us are in debt. To be more precise, the average UK debt is at £8,000 per person (excluding mortgages). Those who are struggling tend to always ask the same question, which usually sounds something, like “What steps shall I take first? Should I pay off my debt completely or build a saving?”
Our parents might have taught us how important it is to give back money owed to others during childhood. Although today, becoming debt-free involves a great amount of patience and discipline, especially when you don’t have much money to start with. In this article, we will give you a few tips so you can figure out what to do first.
How high are the interest rates of your debts?
Presently speaking, not all debts are equivalent. A few offer actual fair interest rates, while others (similar to credit cards) have much higher rates. In the event that you have a debt charging you a higher interest rate (normally anything surpassing 15% can be viewed as high), it is smarter to pay it off quickly. Procrastinating or ignoring this will leave you wind up spending more cash when repaying.
Do you funds on the side you can access as last-resort?
There can be days throughout life where we can face unforeseeable challenges. Anything can occur and you should be ready to handle both celebrations and tragedies. It could be a car crash, disease or getting fired from work. Hospital bills and sudden expense rack up quite rapidly. The important aspect one should consider is either or not you have a plan b to pay for such scenarios.
Unfortunately, an amazing number of individuals still don't have funds set aside in a just-in-case account. Thus, in the event that you don't have cash put aside, therefore you must begin saving right after you finish reading this sentence. Doing as such will enable you to have a safe haven when such unpredictable things occur. Also, It will spare you from drowning deeper into more debt.
Do you require a big amount of money in the near future?
Is it fair to say that even though you are facing challenges financially, you still deserve a chance to accomplish some of your life goals such as starting your own business or travelling to Europe with your family for some quality time? We all have objectives and if yours require quick financing, at that point you need to figure out where the cash will originate from. Ask yourself whether your current debt is holding you back from accomplishing your life goals. If you have to utilize your saved cash to finance whatever it is that you planned to, you can postpone large debt installments for some time. This goes the same for the majority of your debts, either a cash loan, credit cards or automobile loans.
Finally, deciding to entirely pay your debt off or saving your cash on the side and let it accumulate with time depends on your budgeting situation. If you’d like to receive more guidance concerning the repayment of your debts, you can read one of our previously written article entitled Pay back your debt without hassle. When there’s a will, there’s a way!