Debt or Savings?
Do you think about life without debt. I know that most people think that their lives would be easier if they did not have to allocate part of their budget toward home loans, car payments, and of course, credit cards. Some of us even picture a dream life, in a shack by the beach, with nobody to pay.
I can even think that the popularity of all of those end of the world stories comes from some wish that something, even anything, would come along and wipe out our creditors!
But are we better off without debt, or should we had onto cash? I think the answer is complex, and like most things in life, it depends.
Consider Changing Your Debt
Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.
Look at high interest rate credit cards. It is not unusual to see 25% interest rates these days. If many Americans carry $8,000 in debt, that means they have to pay $2,000 just to service it. If you could reduce that interest rate to 12.5%, you could save $1,000 every year without working any extra hours.
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plan to set aside five hundred dollars, and then you never get around to it, you will not be better off.
Evaluate Loans vs. Investments
Do you have a fairly good home loan with a lower interest rate? Do you also have a way to save your money that pays high returns? Then you do have to consider that you may be able to deduct the home loan interest, but have to pay taxes on your savings. In this case, you will probably do well to leave things alone.
Think about the impact of taxes too. Most of us can deduct our home loan interest, but we have to pay taxes on the gains we make. - 29904
Do you think about life without debt. I know that most people think that their lives would be easier if they did not have to allocate part of their budget toward home loans, car payments, and of course, credit cards. Some of us even picture a dream life, in a shack by the beach, with nobody to pay.
I can even think that the popularity of all of those end of the world stories comes from some wish that something, even anything, would come along and wipe out our creditors!
But are we better off without debt, or should we had onto cash? I think the answer is complex, and like most things in life, it depends.
Consider Changing Your Debt
Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.
Look at high interest rate credit cards. It is not unusual to see 25% interest rates these days. If many Americans carry $8,000 in debt, that means they have to pay $2,000 just to service it. If you could reduce that interest rate to 12.5%, you could save $1,000 every year without working any extra hours.
Keep Your Emergency Fund
If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.
Stick with a Plan
The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.
Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plan to set aside five hundred dollars, and then you never get around to it, you will not be better off.
Evaluate Loans vs. Investments
Do you have a fairly good home loan with a lower interest rate? Do you also have a way to save your money that pays high returns? Then you do have to consider that you may be able to deduct the home loan interest, but have to pay taxes on your savings. In this case, you will probably do well to leave things alone.
Think about the impact of taxes too. Most of us can deduct our home loan interest, but we have to pay taxes on the gains we make. - 29904
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