Paying Debt or Saving and Investing Money: The Big Confusion
Paying debt is known to have a bad and crippling experience on finances. It is true that for most of the individuals borrowing is not a choice at all but for the people who borrow money, it is crucial that they try to clear it off as fast as possible. It has been observed that paying money for education or for purchasing your own house is not a possibility for all the families. This is why they end up taking loans. However, many of the times it is not possible for them to clear all their debts easily. An important question that most people keep asking is whether they should try to pay their debts first by making aggressive payments to the creditors or they should try to save money and invest it.
The answer to this question is completely dependent on the kind of loan that you have to repay and the savings as well as investing goals that you have.
It is crucial that you pay a minimum balance for your debt
When you are deciding whether you are going to clear the withstanding debt or you should save and invest your money or look into Bitcoin Era Test, you need to understand that this decision is about what you are going to do with the money that is extra. It is your duty to make minimum payments before you are allocating your money towards any other objective, which includes investing money for retirement or saving in emergency funds. This is going to be true even when it is required to forego your employer match in the 401(k) because you are not going to have enough money for investing and paying your debt.Â
If you are not making a particular payment for your debt or you are being late, it can lead to various financial catastrophes. You can damage the credit score, which will make it almost impossible for you to borrow money in the future. Chances are that you are going to incur late fees, which means that your penalty rate of interest will be triggered, which is going to increase the costs of repayment. You can also face repossession or foreclosure, especially if you are not paying the bills. As soon as you have made a minimum payment towards your debt amount, it is your responsibility to decide whether it is a good idea to make large payments in order to completely clear all your debt, or you are interested in using this spare cash for saving money in your emergency fund, saving for down payment for purchasing your house, or saving for retirement.
You can also decide if you want to save money for the college of your kids or for other important goals like home improvements, weddings, vacations, or big purchases. It is true that accomplishing all these goals might be extremely crucial for you but it is also significant that you try to become free from debts as fast as you can.
It is important to have extra money for allocating to investments, savings, or debt
Most of the Americans live from one paycheck to another paycheck and it is impossible for them to save any extra money. This is one of the biggest problems because it is going to become impossible for you to improve the financial situation at all if there is no money for becoming free from all your debts or saving for the future. If you find yourself in this kind of a situation, it is crucial that you increase the income or avoid spending money for accomplishing the financial goals. According to www.forbes.com, the APR on the credit cards is 14.38%, as of August, this year.
Increasing your income means you need to ask your employees to raise your salary or you have to start doing something apart from your regular work in order to earn more money. It is also crucial that you try to cut down your spending. For this, you can change the way you are living your life, set up proper budgets for each month, and try to make tiny changes so that you can save a lot of money at the end of each month. Paying the extra money for clearing your debt or saving and investing money are considered to be the better uses of the money in comparison to those purchases, which will not increase the net worth that you have in the future. Make all the changes that are required so that you can save enough money only for these important reasons. In order to gain knowledge about the various kinds of debt relief programs that are available, you can go through the website of Nationaldebtreliefprograms.com.
The kind of investing and saving matters a lot
When you are learning about making a big change, it is significant that you start prioritizing few kinds of savings so that you do not fall back into the clutches of debt all the time, especially when unexpected expenses arise. This type of savings is known as an emergency fund.
The significance of breaking your debt cycle is one of the most important reasons as to why an individual should save for his emergency fund, as believed by most of the financial experts. The reason behind this is that emergencies can happen inevitably. If there is no money for covering the emergencies, you will be left with no choice but putting a surprise expense on the credit card. This is going to create a financial situation where you will be constantly moving in as well as out of your debt and you will not be able to improve the current situation you are in. It can also kill the motivation of repaying your debt.
Saving money in your emergency fund is also going to help in protecting your health especially when you will be capable of paying your medical bills if any medical emergency arises. This is why it is crucial to have an emergency fund and you should not ignore this.
Conclusion
As important as it is to clear your debt, it is equally crucial to saving money. Financial advisors suggest that you do both hands in hand and you are going to be the one who will benefit from this.
Author Bio
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including business debt consolidation and start-ups.
