I was recently doing my usual daily perusing of Facebook when I saw a bunch of hometown friends sharing a financial article that argued people should pay off all their debts before saving for emergencies.
At first, I was totally shocked. As a finance expert, I get that paying off debt is important, but it shouldn’t be at the cost of your own financial detriment. Keeping an open mind, I clicked on the article and read it anyway.
It basically stated the following: If you have high interest debt, focus on paying it off as quickly as possible. That may mean neglecting your savings for a bit, but at least you get rid of high-cost debt.
This post has been written by the ever-talented, Amanda Abella. Enjoy!
Why Neglecting Your Savings In The Name of Paying Off Debt Is a Problem
While I get the argument that paying off debt should be a top priority, there’s just one massive problem with this logic.
If you neglect your emergency savings (of which Americans don’t have much of to begin with) in an effort to get rid of your debt, and you find yourself having an emergency during this time, you won’t have the liquid cash to cover it and will slap the expense on credit. This only further perpetuates the vicious cycle you’re trying to get out of.
Besides, there are multiple ways that you can save and pay off your debt at the same time. Here are just a few of them.
Start with $1,000 In Savings
While most experts agree that you need at least six months worth of living expenses in case of an emergency, the reality is this can seem like an audacious task where you’re ready to quit before you even start.
That’s why financial experts like Dave Ramsey suggest starting off with just getting that first $1,000. Once you’ve got that, you’re covered in the case of a car repair or emergency room co-payment.
From there, you can ease off the gas pedal on the emergency savings (though don’t neglect it entirely) and put the focus back on paying off debt.
Find ways to lower the interest on your credit card.
When it comes to paying off debt, particularly high-interest consumer debt, most people don’t realize that their interest rates aren’t set in stone. In fact, there are multiple things you can do to lower interest rates.
- Negotiate a better APR. If you have a good history with your credit card company, you may be able to negotiate a lower APR on your credit card bill. Ramit Sethi of “I Will Teach You To Be Rich” has a script you can follow for this.
- Balance transfer to a 0% interest rate credit card. There are several balance transfer credit card promotions out there that can help you lower your interest payments on your debts. Just make sure to crunch the numbers so you’ll know whether or not you can pay off your debt during the promotional period. And keep an eye out for transaction fees as well.
These two tips alone can save you an exorbitant amount of money on interest fees.
Find Ways of Making More Money
The last step is to find ways of earning more money. Side hustles can come in handy when you’re trying to pay off your debt while still saving money. In fact, side hustling is how many people have been able to climb out of their mammoth debt hole.
Want to start your website? It’s easy with this step-by-step tutorial! Still need help? Send me an email at derek (at) lifeandmyfinances [dot] com.
You do not have to neglect your savings when paying off debt. By following these tips you can manage to save and pay off your debt at the same time without feeling like it’s an impossible feat.