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Is It Smarter To Invest My Money Or Pay Off Debt

Jan 7, 2008
To answer this question, you must decide how your money can work best for you. While having a savings account is a way to plan for the future, becoming debt-free is an excellent strategy for creating long-term health.

Take a look at your savings account statements to see how much interest you're earning. Now take a look at your creditor's statements for the debts you have. You are probably being charged more interest on your debts than you are earning on your savings.

If the interest rate on your debt (say a credit card) is 13 percent, you would have to find a savings option with an interest rate equal to or greater than 13 percent to make additional money.

An easy way to get a big picture view of your debts is to write them down. Make a list of your debts by creditor name, amount owed, and interest rate. List them in the order of highest interest rate to lowest interest rate.

How can we eliminate this high interest debt? Several ways are: putting the card away so you don't put additional charges on it, paying more than the minimum amount due each month, transferring the balance to one of your lower interest rate cards.

And additional ways to lower interest debt are: getting a lower interest rate debt consolidation loan and enrolling in a credit assistance program.

So far it may sound as if paying off debt before investing in savings is the best option. Most financial experts recommend budgeting 5 to 10 percent of your income monthly for savings. So what should you do? Here are some options:

Pay off debt before investing in savings. This will look good on your credit profile, but you won't have a financial cushion if you need it.

Make the minimum payment required on your debt and create a savings account. This will give you a financial cushion, but it will prolong the life of the debt and may cost you more money in the long run.

Find a balance between paying off debt and investing in savings. Paying off debt now while working toward building a savings puts you in control of your money. Pay a little more than the minimum payment required on your debt and put the rest into your savings.

Now the solution becomes very personal. You must look over your "big picture view of your debts" because yours is yours alone. And only you know the monthly income for your household and must decide what is best for you.
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