One of the biggest hurdles to overcome when you first start building up your savings account is figuring out just where the money will come from. This is especially difficult if you have debts to pay off. Should you be putting money aside in savings to be used later when it could be used to pay down your debt faster instead?
Unfortunately there’s no answer that applies to everyone, and ideally you should be both paying down your debts and adding to your savings at the same time. However, there are some guidelines you can use when deciding whether to save money or pay down debts.
When you have debt, your top priority needs to be making at least the minimum payment on all your accounts. If you don’t, you’re inviting financial mayhem.
If you have any debts with an interest rate above 8%, focus on getting those paid off as soon as possible. This type of debt could cost you a lot of money if you let it linger. The most obvious example of this is credit cards, which usually have interest rates in the double digits.
Low-interest loans, on the other hand, were designed to be paid off gradually over time. If you can make the minimum payments on those, you might want to consider putting more of your money in a savings account rather than aggressively paying down these types of debts.
It’s worth pointing out that you might be able to consolidate your high-interest debts into one low-interest loan.
If your employer has a fund-matching incentive as part of their retirement program, you need to take advantage of it. Otherwise, you’re leaving money on the table that would otherwise be going to fund your retirement.
When trying to decide whether to save or pay off debt, you’ll want to make sure to at least make the minimum payments to keep all your accounts current and prioritize paying off high-interest debt. You’ll also want to concurrently work on your savings if you don’t have any money in your savings account.
You can pay down your debts faster and build up your savings when you become a member of First Alliance Credit Union. Once you're a member you can put money into our traditional savings accounts or incentivize your savings goals with a WINcentive Savings account. Plus, you can get a debt consolidation loan to combine multiple high-interest debt payments into one convenient, low interest monthly payment. You can find out if debt consolidation is right for you when you download our free debt consolidation calculator.