Should You Save or Pay Off Debt?

Should You Save or Pay Off Debt?

What’s more important – saving your money or paying off the debt that you already have?  This is a really big question, especially for anyone wanting one day to move into a home of his or her own.  And today, as our country’s economy emerges from one of the deepest recessions in its history, this question is even more pressing.

It seems as though America has a new aversion to debt – perhaps because of the state of the economy or the recent issues about raising the debt ceiling.  Or maybe people are just getting smarter and want to move in the direction of financial sustainability.  Almost 90% of the population is now trying to pay off debt before saving.

However, if you want to move into a debt-free life, it can be a real challenge, especially when it comes at the expense of saving.  It’s great to pay off your debt if you already have a savings account.  But, some experts say it is important to pay yourself first – in the case of an emergency.  The rule of thumb is to save at least 10% of your income.

So, if you want to move into a home that you own one day and have a considerable amount of debt, you might want to start off by paying down your credit cards, followed by everything else.  However if possible, pay off your debt and contribute to your savings at the same time.

Jon Huser