Should I Save or Pay Off Debt First?
Here’s the big question I get:
Should you pay off debt or save first?
In my book - pay off debt, but some people need to have piece of mind and in that case, work up to $500-$1,000 and then get after the debt.
Not sure? Try this:
STEP #1: Look at the interest you paid last month on your credit card(s). If more than one credit card, add the interest you paid on each card to get one number. Keep that number handy.
STEP #2: Estimate how many months it will take you to save $500 (or your savings goal).
STEP #3: Multiply the number of months by the total amount you paid in credit card interest last month. This gives you an idea of how much it will cost you to NOT pay off the card and save first.
STEP #4: Look at the amount of interest you made last month on your savings account and multiply that by the number of months you think it will take you from step #2. If you don’t have a savings, look up the interest rate of the savings account you want to open (usually 1-2.5%), multiply that by the amount you can put into savings each month. Take that number and multiply it by how many months it will take you to save that amount.
STEP #5: Compare the two numbers. If the credit card number is more than your savings number, my recommendation is to focus on paying off your debt because this means you are LOSING money to your credit card interest faster than you can save it.
Nope, this is not the EXACT math, but we are all about ease up in here.
Don’t care about that and just want to see a little next egg, you do you boo.
Livin’ & Lovin’