Save Money or Pay Off Loans?

Posted by Melinda Torbay

October 10, 2009

Enter Your Loan & Zip Now For A Free Mortgage Quote Comparison

by Melinda Torbay

Should You Sacrifice Savings to Pay Debt Off?

Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.

I really think that those end of the world books became popular as an escape. Even if something awful happens, like a zombie invasion, it would still wipe out all of our creditors too.

But are we better off without debt, or should we had onto cash? I think the answer is complex, and like most things in life, it depends.

Move Credit Around

Even if you cannot totally cut your debt, you may be able to reduce it. Look for refinance offers, or offers to transfer your credit card bills to a lower rate card. If you can reduce your interest rate by a couple of points, you may save lots of money every year.

Try to pay off high interest credit cards if you can. Some credit rates are just crazy these days. People are getting notices that their rates are rising to 25 percent or more! Even a fairly low balance of $4,000 can cost $1,000 a year just to service!

Make Sure You Save Too

If you do have debt, I still think you should keep an emergency cash fund. If you do need to spend some money in an emergency, you could have to borrow money on worse terms, and so paying off your old debt may not do you much good.

Try to Stay The Course

The way people have managed to pay off debt is to make a plan and stick to it. Even if you can only set aside $100 a month toward paying off debt, plus another $100 a month toward your savings account, you can still help yourself out.

But if you plan to use $500 to pay off debt, and then never get around to actually doing it, you will not help yourself.

Balance The Interest Rates on Investments, Savings, and Credit

If you are lucky enough to have a low rate mortgage, but a high return investment account, you will probably do better to leave things as they are. If you can earn 8% on your money, but only pay 6& on your mortgage, you may be better off by paying off your home the slow way.

You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction.

About the Author:

Learn more - - pay off debt? Our on line Debt Payoff Calculator can give you some real answers.

Next Post: No Doc Loans - Are They Right For You?

Addidtional Helpful Posts

Influenza And The Elderly
The flu is a problem that we are all familiar with. Most of us experience bouts with the flu from time to time, and we may find that the...