Paying Off Debt vs. Saving

Like many things in life, this decision is very subjective and the proper answer generally hinges upon your lifestyle, status and circumstances.  If this was a simple math problem – the answer would be paying off debt since the cost (interest rate) of your credit is bound to be higher than the rate of return (interest) on your savings account. However, life is rarely as simple as a quick math problem.

While some people are fine get obsessive with lowering their standards, living as far below their means as possible and paying off debt as quickly as possible, it doesn’t mean that method is for you. Many people function better with a sense of balance.  Putting together a plan to pay off debt over the next 3, 5 or 10 years and also build a savings account or contribute to retirement at the same time.

Depending on your scenario it can also be best to save up an emergency fund. Whether that is $1000 to cover an unexpected auto repair or a rogue water heater – for some, it will make best sense to have 6-12 months of living expenses in the bank.

The first step to deciding what is best for you and setting priorities based on the stability of your income, as well as current and future goals.  One thing that cannot be argued is that debt is a burden and savings equals stability. How badly do you need to rid yourself of the burden compared to how badly you need financial stability?  Although accomplishing both of these things is what will get you on the track to financial prosperity, the conclusion and order of action will be different for many.

Need help deciding what the best course of action is for you? Do not hesitate to reach out to us – gfield@numerico.com!