If you’re like many of us, you are often left wondering what the smartest decision is – should you pay off your debt first, or should you start saving? In most cases, the answer is simple – you should do both!
You can’t ignore the high interest rates charged by credit card companies, and the odds are not good that you’ll be able to beat them with your investments. This means that you should definitely work at paying down your debt first and foremost. However, you can’t neglect your savings entirely.
First, have an emergency fund. This should ideally encompass six month’s living expenses for your entire family. That way, no matter what happens, you’ll be poised to be able to deal with it rationally and won’t be forced into immediate and additional debt in the event of an unforeseen emergency. Although saving this much emergency money will mean that you are racking up additional interest on your credit cards in the meantime, this will not seem like much if an emergency actually strikes and you are faced with the problem of paying the mortgage or keeping food on the table.
Once your emergency fund is in place, focus on paying off all of your credit cards. Make a plan to pay regularly above the minimum, and once one card is paid off, keep paying that amount toward another card until they are all taken care of. You may want to ask for lower interest rates, or roll your balances to a zero interest or low interest card as well.
Following these simple but tried and true guidelines will help you get (and stay) out of debt, and will pave the way to allow you to begin saving above and beyond your emergency fund.