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Savings or debt?

Recently I was reading in a couple forums and I’ve found a few people asking what would be better, to save money or concentrate on paying off your debt first?

While I’m not going to say which one is better my outcome here is not to give you a direct answer to that question but to help you make the decision which would be better for you to do first.

Which would you do first?

Depending on your situation this question can have a multitude of answers. If there is a preferred way you would go about this leave me comment. If it’s hard for you to decide on which would be the option to place the most importance on don’t worry your not the only one. But I do want to make one thing clear first.

Making a decision is better than making none at all. Even if it may be the wrong decision.

I’ve seen this many times sometimes we just can’t make up are minds about which way to handle things.

And then it happens. NOTHING!

We literally lock up and do nothing. The worst part about that is we allow ourselves to stop simply because we may not like the outcome we are going to face. Don’t worry about whether it is wrong right. Sometimes just taking action is all you need to do to get the ball rolling.

In fact you may be saying to yourself that you want to take some time to review your options. Thinking this will give you a clearer path to follow. Though what I have found is that taking action clarifies your thought process and helps you make better decisions.

If you don’t believe me try it once.

So here is a simple exercise I want you to do to help you consider what may be the best option for you.

Compare and Contrast

Take out a sheet of paper and write savings on one side and pay debt on the other. Now on the savings side write all the great things that would happen if you saved more money than pay off your debt. List as many as you can. Then do the same on the other side with the pay off debt option.

For example, on the saving side you might put:

Build up an emergency fund
Have extra spending cash
Save for retirement
Save money for kids college funds

Then for the paying off debt side you might put:

Pay off credit cards
Frees up $80 a month from credit cards
Pay down mortgage balance
Creates more equity in my home

You get the idea.

Once you are finished simply see which side has the most points that you would agree with. Not just the ones with the most points but the ones you feel hold the most weight in your oppinion. Which would you weigh heavily in? Leave me a comment how you feel about this.

Everyone’s situation is always different.

Nobody has the same exact situation. So in order for you to decide there are some key factors you may also want to think about.

How much debt do you have?
How long would it take you to pay off your debts?
What debts do you have to pay off?
How old are you?
How much do you have saved up?
How long would it take you save that money up?
What are you saving for?

Is debt the right answer?

In reviewing the questions above if you have a lot of debt and it will take a long time to pay it off you may want to start here. However it also depends on what type of debts you have and your age. The reason you need to consider is at what age do you stop paying debt and save for retirement. If you pay off all your debt your entire life but never save any money to retire on you may end up facing some tough decisions.

If you want to put your own debt plan together read this first.

Age has a big weight in this issue.

The sooner you start saving money the better and the easier it will be to fund your retirement, save for college funding, and save for an emergency fund of all things.

If you are older and close to retirement and haven’t saved any money yet it may be to late. There may be some other options here but saving money is not one of them. I’ll talk about this in future articles.

To learn more about why saving now is better read this article.

Is saving the right answer?

Again it all depends on how much money you have, what you are saving for, and of course how long it will take. If you are 60 and just starting to save for retirement you aren’t going to get to far. On the other hand if you were 25 you may want to start saving now. At least in your 401k program to start. When it comes to saving it’s never to early to start.

Compromise

In most cases though you just won’t do one or the other unless it’s the only way to handle the situation. Most of the time you will be doing both but placing emphasis on one more than the other.

For example, you may be deep in debt but at the same time you may be saving money in your 401k program at your job if they offer one. This could be a possibility. That’s what this is all about the options you have avaliable.

Finally, think about the different opportunities available. Make sure you take the time to come up with a few ideas to handle the situation don’t just do the one that sounds best to you. Then do the most important step.

Take Action!

So? How do you handle this situation? Would you pay off you debt first or would you save the money or would you compromise on the situation? Leave a comment and let me know.

In part 1 we talked about how to actually get debt free yourself. In part 2 we will talk about the advantages and disadvantages of doing this strategy.

Advantages

The consumer is in full control. Again, as I have talked about this in part 1 of these articles. You have complete control of how you would like to get debt free. If you would like to take a more conservative approach and pay off your debts slowly it works. If you decide that you would like to take a more aggressive approach and cut expenses quickly feel free to do so.
No damage to your credit. This is one of the greatest reasons right here. Saving your credit can save you a huge amount of time and energy. Without damaging your credit reports and you can get back on track much more quickly. However I must make one point though. This holds true as long as you don’t miss any payments. Which is truly the kiss off death to your credit report. Missing one payment on anything can kill your credit.
Saves your reputation. If you don’t want this to end up in the eye of the public this can be an excellent way to conceal that. As with bankruptcy your reputation tends to go down the tubes for a long time, 10 years to be exact.

Disadvantages

You Must be disciplined. If you expect to get debt free you must stay disciplined and focused. Getting out of debt is not easy. With all the negative collection calls, bills, notices, and forclosures it’s easy to get depressed of the situation. You will have to be tough as nails.
Establishing an emergency fund. This can be a tough issue considering that you don’t want to create anymore credit or use any of your credit cards. Although once you have paid off your debt this is the first thing I recommend to do. An emergency fund will create a sense of balance that will let you breath and also not put you back into a rut once an unexpected bill comes along. I also want to add that using your credit cards as your emergency fund is also a bad idea.
Failure to make extra payments and increase in debt. This could be the biggest disadvantage to the program. If you stop paying the extra payments and debt increases you could be in for some serious issues. In fact if it builds up to much it could turn into a situation I seen an individual go through once where she had so much debt that she couldn’t even make her minimum payments and get by.

When should you start?

As soon as possible. Don’t delay. You may even be thinking that you don’t have much debt and believe you don’t need to be in this program.

It’s never to late.

Give yourself the benefit of the doubt. Start now. I’ve known people who have had great financial situations and just because of a little pride and overspending have put themselves into terrible situations.

Call to Action.

Start gathering your bills now.
Write out how you will pay them off.
Put a plan together and put it in a familiar place.
Read it twice a day. Morning and evening.
Stay focused and pay off your debt!

If you haven’t read part 1 you can do so here.

The Decision That Could Hurt You

The Pros And Cons Of Getting Debt Free Yourself – Part 2

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