If you’re carrying debt from month to month, it’s likely that you may be one of the 56% of Americans who do not have enough in their savings account to cover an unexpected $1000 expense. When you’re struggling with debt and an empty savings account, knowing where to focus your financial energy can be confusing. Should you focus on paying down debt or saving money? That really depends on your unique financial situation.
There are situations in which your focus should be on tackling debt, and others in which you should concentrate on tucking money away. Knowing when to do this can be tricky, but we can help. At Lendah, we’ve managed millions of dollars of debt for our clients so that they can focus on cultivating financial stability for the future. Let’s dive into when it makes more sense to prioritize debt repayment and when it makes more sense to focus on saving money.
When to Focus on Paying Down Debt
If most of your debt has been accrued on high-interest credit cards, it may be wise to prioritize paying down debt first. The higher the interest rate, the more the debt costs. Focusing on debt repayment now will save you money in the long run. However, if you allocate all of your excess funds to paying down debt without having anything in your savings account, you could end up taking on even more debt in an emergency situation.
When to Focus on Saving Money
It may make sense to prioritize saving money if your debts have a lower interest rate or if you have a fixed monthly payment. If you can easily manage your debt payments, allocating extra funds to your savings account now can actually increase the amount of money you’ll earn over time in compound interest.
Another reason to focus on saving money first is if you don’t have an emergency fund. Unexpected expenses such as an emergency vet bill or minor home repair can lead to accumulating even more debt if you don’t have any money saved. In this case, it might be best to save as much as you can each month until you reach a certain threshold, such as $1000. Once you’ve got an emergency fund established, then you can reevaluate what you want to prioritize moving forward.
How to Find Balance Between Paying Down Debt and Saving Money
Waiting until you’re completely debt-free to start saving could be a big mistake, but only making your minimum debt payments will also keep you at a financial disadvantage. The key is to find a balance between paying down debt and saving money. Debt consolidation can help you find that balance. If you have multiple forms of debt, including high-interest credit cards, you can combine all of those debts into a single loan with a single monthly payment. With a debt consolidation loan, you can save money if you qualify for a lower interest rate and even pay off your debt faster. This strategy makes debt repayment more efficient but also leaves room in the budget to contribute to your savings.
When consolidating debt, it’s important to find a loan with the best terms to fit your financial goals. At Lendah, our expert loan consultants can help you find a debt solution that allows you to focus on paying down debt and saving money, too. To learn more, reach out to our dedicated team at 844-860-0766 or get started now by completing our quick and easy online application.