Business & Finance Debt

Discover Why You Should Use Your Savings to Pay Off Debts

If you take a quick look at some websites or newspaper columns that give people advice on getting loans and paying off debts, you might be surprised to discover that the most common question being asked isn't, "Can I get a government grant to pay off my debts", or even "Where can I get a cheap bad credit loan?", it's "Should I use my savings to pay off my debts?" BTW - There are no government grants available that can be used to pay off debts! So Should You Use Your Savings To Pay Off Debts? It probably needs to be explained right up front, why so many people keep asking the question, and why there are so many different answers.
The answer is, that no two people's situation is the same, which in turn means that the answers will vary.
The First Part Is Easy.
Take a look right now and seeing how much interest you're paying on your debts, and compare it with how much you're getting on your savings.
If what you're getting less interest on your savings than you're paying on your debts, then you'll clearly save money by paying off your debts.
But that's by no means the whole of the story, and it would nice if it were as simple as that.
If you have enough money to pay off all your high costing debts and still have some money on hand, then of course you should pay off your debts, but it's unlikely that you'd be reading this, if that were your situation.
Always Keep Some Money For Emergencies.
a) Imagine that you used all your savings to pay off a lot of your debts but still had a lot to be paid off.
You get laid off, or you have to pay a medical bill or take care of some other crisis, and you can't make the minimum payments on your loans and credit cards.
The extra interest that you'll have made will get wiped out very quickly, and so will your credit rating.
b) Suppose that for some reason your salary doesn't get deposited into your bank account when it should do, and there are a myriad reasons why that can happen, such as holiday week-ends or glitches in someone's payment system.
Most, or all of your payments will go unpaid and you'll incur all kinds of charges and fees from lenders.
Just How Big Should Your Nest Egg Be? It varies a little, but a good yardstick would be at least three times your monthly expenses, and much better would be six months.
Most Europeans consider six months the norm whereas many Americans don't even have two weeks money set aside.
The State of California had the American mindset and look at it now.
It's paying people with IOUs because it's bankrupt.
And Now For The General Advice.
Although there's no fixed answer to the question of whether a person should use their savings to pay off their debts, there is some general advice that can be given.
1) If possible, set aside three months of expenses, and a minimum of two months, to be sure that you'll have enough to cover any unexpected events that my occur.
2) Use the rest of your savings to pay off or pay down the debts that are costing you more interest that your receiving on your savings account.
A mortgage or fixed rate student loan is not something that you'd typically want, or even be able to pay off, but your credit cards are, and if you can't pay them all off with your savings, then pay off the ones that are charging the highest interest rates and fees.
3) If you do manage to get rid of your high costing debts, the next step would be to increase the amount in your savings account to six months if you can.
4) If you have a good job and succeed in doing all of the above, then you might want to think about making some investments, and if you have a hobby that you're an expert on, then you might want to invest in that.
I'm talking about stamps, collector's items and antiques etc and not financial investments, unless you really understand them.
It's good to be cautious, but paying large amounts of interest for little or no reason makes little sense.
So if you have the money to pay them off then you should do so, as long as you keep some money set aside as suggested above.
SHARE
RELATED POSTS on "Business & Finance"
Debt Relief Grants - Don't Pay Any More Bills
Debt Relief Grants - Don't Pay Any More Bills
Debt Solutions For 2010 - How You Can Take Advantage and Eliminate Debt?
Debt Solutions For 2010 - How You Can Take Advantage and Eliminate Debt?
Debt Relief - How to Use the Threat of Bankruptcy to Terminate Half of Your Credit Debt
Debt Relief - How to Use the Threat of Bankruptcy to Terminate Half of Your Credit Debt
How to Zap Your Debt
How to Zap Your Debt
Debt Settlements Vs Bankruptcy - Why Debt Settlement Has Become the Appealing Post of 2005
Debt Settlements Vs Bankruptcy - Why Debt Settlement Has Become the Appealing Post of 2005
Help With a Credit Freeze
Help With a Credit Freeze
How To Advise People on How to Control Debt
How To Advise People on How to Control Debt
Debt Relief Options - Debt Settlement Deals and Stimulus Money
Debt Relief Options - Debt Settlement Deals and Stimulus Money
10 Questions You Need to Ask Yourself to Know If You Are in Deep Debt
10 Questions You Need to Ask Yourself to Know If You Are in Deep Debt
Erasing Credit Card Debt - Anyone Can Easily Eliminate Their Credit Card Debt by 55-60%
Erasing Credit Card Debt - Anyone Can Easily Eliminate Their Credit Card Debt by 55-60%
Ways to Approach Debt Reduction in a Tough Economy
Ways to Approach Debt Reduction in a Tough Economy
How to Get Out of Debt - Now You Can Get Out of Debt Quickly and Efficiently
How to Get Out of Debt - Now You Can Get Out of Debt Quickly and Efficiently
During Debt Consolidation Loan Keep Saving
During Debt Consolidation Loan Keep Saving
Debt Management Services - Paves The Way Out
Debt Management Services - Paves The Way Out
Credit Card Debt Settlement, is it Right For You?
Credit Card Debt Settlement, is it Right For You?
Discovering Low Interest Rate Debt Consolidation Loans For Those Holding Bad Credit Scores
Discovering Low Interest Rate Debt Consolidation Loans For Those Holding Bad Credit Scores
Online Programs for Debt Consolidation
Online Programs for Debt Consolidation
Bad Credit Debt Consolidation Loans - Simple Yet Effective
Bad Credit Debt Consolidation Loans - Simple Yet Effective
Debt Settlement Negotiation - Learn More About This Useful Tool For Getting Out Of Debt
Debt Settlement Negotiation - Learn More About This Useful Tool For Getting Out Of Debt
Credit Debt Settlement - Locating Debt Settlement Companies in Your Area
Credit Debt Settlement - Locating Debt Settlement Companies in Your Area
Debt Consolidation Loans - Financial Aid to Overcome the Burden of Debts
Debt Consolidation Loans - Financial Aid to Overcome the Burden of Debts
Credit Debt Relief - Get Rid of Credit Debt in a Legitimate Way
Credit Debt Relief - Get Rid of Credit Debt in a Legitimate Way
Credit Card Debt Management - The Best Solution
Credit Card Debt Management - The Best Solution
Practical Suggestions on How to Win Your Battle Against Debt
Practical Suggestions on How to Win Your Battle Against Debt

Leave Your Reply

*