Should You Save, or Pay Off Debt?
This is a question that nag many of us, we have over the years acquired different types of debt (some good some bad) at different rates and we know we need to pay it back, but we also know that we should be saving our money for things like retirement, buying a home, children, education, etc. so how do we decide? Use the tips below to aid you in your decision.
1. Put your money to work at the highest interest rate.
This generally will mean applying your money to credit card debt. The average credit card interest rate is around 14.7% and often can be over 20%. Start with your highest credit card rate and pay that one off. Then move to the next highest interest rate card and then continue until all your high interest rate debt is paid
2. Look for the "good debt".
Believe it or not, there is some debt that is considered good. Debt to purchase a home, and to further your education, is considered an investment in your future. One (your home) is probably the largest asset you will acquire in your lifetime; while the other (your education) can reap financial rewards in the way of new opportunities and/or promotions.
Mortgage debt: Generally lower interest rates and also offers a tax deduction in most cases.
Student Loan debt: Can often be lowered by consolidating loans and interest may be tax deductible up to $2500/year (depending on your income).
3. Pay off and save.
Once you have successfully paid off your high interest debt, you can begin saving and investing for your goals. For your retirement, your employer sponsored plan 401(K), 403(b) (etc) and or contribute to an IRA. For your emergency savings try and save up to an amount that would cover the cost of your living expenses for at lease three months. You can save your money in a saving account or short term certificate.
unbiased financial information provided: by Hubert brown.
Hubert Brown is a commercial Mortgage consultant for several years and is the ceo of HB. commercial consulting Inc
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