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Should You Save Up Your Money Or Pay Off Your Bills?

debt vs loanThis is a debate that has been going on for a long time, but in a National Foundation of Credit Counseling survey, 89% of those polled said they are working on paying off their debt first.

However, while paying debt is a good thing, it comes at the expense of not having savings to dip into in case of an emergency.

The advice given by my financial gurus is to find out what interest rate you are paying on all of your debt, and work on paying off the one with the highest interest rate first.

So, let’s say that you have a credit card with an interest rate of 13%; start paying extra money to eliminate that debt first. When that has been paid off, make extra payments on the next debt with the highest interest rate.

Not everyone agrees with the concept of paying off your debt first. While the survey indicates that most people want to get rid of the debt, there is another school of thought that says that at least some of your money needs to go into savings too.

First, figure out how much money you spend every month for food, mortgage payments, utilities, clothing, etc., and make sure you have at least 6 months’ worth of savings in case of an emergency, job loss, or illness. Take care of your basic needs first. Don’t set up a college fund UNLESS you have the extra money to do so. Student loan interest rates are so low these days, it’s better to let them take out a loan than have your savings account suffer.

Basically, it’s up to you.

If you lose sleep over the money you owe, start paying down that debt.

If your savings are low and you freak out because you don’t have enough in case of an emergency, then start stashing that cash.

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