Lately, I’ve been feeling very torn between growing my savings and paying down my debt. This indecision was spurred by recent developments on the home front, quite literally. After about two years of casual looking, I finally convinced my husband to look into building our first – and hopefully last – house. Everything we’ve looked at on the market has been lacking or overpriced. Learning a little more about the building process and how much it is estimated to cost (“estimated” is the key word there, which makes my hubby sweat every time) has made us realize that it’s not much more than what we would pay to buy something we kind of like and try to make it our own. This has also rocketed us into a week-long discussion about budgeting and our finances. The same questions keep coming up over and over again: Exactly how much do we have to work with every month? Will we still have a significant amount in savings should an emergency arise? How much will we be able to continue to save? Where can we cut costs? How can we make sure we’re setting ourselves up for financial success?
Luckily, I’ve become quite the whiz at budgeting. I’ve turned it into a game of sorts for myself; I actually look forward to bi-weekly paydays when I take care of my monthly bills and divide up my savings. I’ve set all new savings goals for myself for the upcoming year – contributions for our future house, vacations we might take, and both this and next year’s Christmas gifts, just to name a few. I’ve also been more dedicated to setting aside money for purchases that occur less often that I’m not always great about planning for – hair cuts/color every few months, oil changes and new tires, new clothes, and “going out” money. But what’s the one thing that gets me EVERY time? My credit card. I hardly ever use it. The balance is from months ago, and I’ve slowly been chipping away at it all summer. They were silly purchases I made when I happened to miss my budgeting target for the month, but I have since learned to wait it out until my paycheck comes. I’ve been so excited about these new goals that I moved that debt to the back of my mind, but I know I have to face it eventually. But I’m not always sure which route I should take… do I save more and pay my debt off a little at a time, or do I throw the majority of my money onto that debt and save less each month?
Let’s talk about some positives of each…
SAVING MORE
- You have something to fall back on in case of an emergency.
- You can plan for future financial events that you’ll need to pay for (and you’ll be able to do so without using a credit card)
- You can earn interest on money in your savings account.
- Peace of mind and less stress – at the end of the day, the money in your savings is yours to use as you choose.
PAYING OFF YOUR DEBT
- If there’s no balance on your card, you won’t be paying interest, and you’ll keep more of your own money.
- Financial freedom – you won’t owe anyone anything.
That said, in the current market there are few scenarios where putting money into savings makes more sense than paying off credit card debt. Currently Savings accounts pay 1% in the best case (.01% is more typical) while credit card debt is usually between 11-30%! That means every hundred dollars put into savings instead of debt is costing you at least $10! While it definitely feels good to start building a nest egg, in the end it’s actually costing you more of your savings. Be aware though, it gets more complicated if your debt is a 0-1% APR car loan or an interest deductible student loan or mortgage.
We want to hear from you! What would you do in this situation? How do you balance between saving money and staying debt-free?
