If you are to choose between saving money and paying off your debt first, which side will you pick? Financial experts are divided on this matter so it’s no surprise if you wouldn’t know which one is financially wiser to op for.
Some experts will tell you to save money first so you have a financial cushion in case you lose your job or a financial emergency take you by surprise. Others will tell you to use your savings to pay off your debt first to lower the cost of interest and speed up the getting-out-of-debt project.
Both sides have good points worth considering. For those who champion saving, it makes sense to have enough to fall back on in case of emergencies. On one hand, paying just the bare minimum on your debt because you’re saving first can cause your debt’s interest rate to pile up. When the amount of interest you earn with savings is less with the interest you incur with your debt, it seems like saving doesn’t make sense. This is exactly what the pay debt first proponents are point out.
So which side of the coin is correct?
At the end of the day, I think it all boils down to individual circumstance. There is no one perfect formula that applies to each one of us after all. Saving or paying off debt should not be pitted against each other. Instead, balance is the key in order to make it all work financially.
Rather than simply and solely focusing on saving or paying off debt, it’s best to do both but with a certain degree of balance injected to the strategy. You can save money for the rainy while also paying off debt in a way that will lower the interest rate and expedite your journey towards financing freedom.