Going back and forth between saving money or paying off credit card debt can be a difficult decision because there are many merits and benefits to both. Saving money allows consumers to pool their resources for future goals, such as owning a home or building a healthy nest egg. Eliminating credit card debt, in contrast, enables individuals to put more money toward those goals, bolster their credit score and stop dishing out more money in interest charges. So which goal should individuals prioritize?
Most financial professionals encourage borrowers to find a healthy balance between the two, according to a recent Daily Finance article. Taking a staggered approach toward this goal may have a number of financial benefits for borrowers. First, individuals should focus on building an emergency savings fund. Having a cushion to fall back on in the face of a setback, such as a car repair or medical bill, can help individuals cover the expenses without being forced to drain regular savings or turn to credit cards.
General wisdom urges consumers to have enough in their emergency savings to cover roughly three to six months’ worth of expenses. But keep in mind, individuals do not have to save all this at once. Instead, begin by saving enough to cover one or two months. Once consumers have a healthy cushion, they can cut back slightly on their savings and devote more to their credit cards. Remember to always start with the credit card that has the highest interest rate first, as this is the card that will impose more interest charges.
After consumers have paid off the bulk of their credit cards, they may choose to again focus more attention on savings. Each individual’s debt and savings circumstances may be different and everyone is likely to have their own unique financial goals. So although this staggered method may be effective, individuals may also want to take their personal needs and goals into effect. Enrolling in a credit counseling program can help debt-strapped individuals who are trying to strike the right balance between saving and paying off balances develop a program that works for their particular scenario. Professional services can also provide consumers with lesser-known or underutilized resources, such as budget or debt calculators, debt management tactics and personal finance seminars to educate adults on effective tools to help them manage their money.