Save or Pay Down Debt: What Should You Do First? | St. Johns Bank
Are you in the midst of paying off a large sum of debt? Or have your debt payments eaten up a lot of your extra monthly income?
Dealing with debt can be challenging. When you feel like you’re getting ahead, something comes up and halts your payment plan in its tracks.
While paying off debt is important, so is building a solid financial foundation. This means emergency funds and savings accounts are crucial to your financial well-being.
Deciding whether you should be putting your monthly funds into savings or toward debt is quite the balancing act.
An Emergency Fund
Most experts agree that an emergency fund should consist of enough money to cover three to six months’ worth of your expenses.
This can be used to cover unexpected expenses, such as a bill from the mechanic or to replace a water heater. Note that an emergency fund is not meant for recreation, such as a vacation or an expensive dinner.
Paying Off Debt
With many types of debt, such as credit card debt, compound interest plays a significant role.
When it comes to investments, compound interest is positive and will greatly benefit you in the future. On the flip side, compound interest makes your debt grow over time, making it feel overwhelming to finally pay off.
Which Is More Important?
Depending on who you talk to, you’ll receive different answers to this question. At the end of the day, both paying off debt and saving money are important. It will likely be the most beneficial to do both at the same time.
If possible, put money toward debt payoff while adding to your emergency fund. Be sure to tackle high-interest debt, but be intentional about building your security blanket.
When a financial emergency arises, you won’t want to use your credit card and go into debt further! Instead, having a safety blanket of saved money will help you improve your finances all around.
If you’re tackling debt, do you believe adding to a savings account is equally as important? Which financial goal do you prioritize, or do you work on both at the same time?
We can help you reach your financial goals. Visit our website today to get the savings accounts, credit cards or loans you need.