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 shouldnt 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, theres just one massive problem with this logic.
If you neglect your emergency savings (of which Americans dont 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 wont have the liquid cash to cover it and will slap the expense on credit. This only further perpetuates the vicious cycle youre 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 youre ready to quit before you even start.
Thats why financial experts like Dave Ramsey suggest starting off with just getting that first $1,000. Once youve got that, youre 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 dont 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 dont realize that their interest rates arent 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
- 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 youll 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 youre 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 its an impossible feat.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.