Stretch Your Dollar: When to pay down debt vs. when to save

Visa and MasterCards with microchips . (AP Photo/Martin Meissner)

(WTNH)– It’s a question many of us have asked ourselves. Do I put money into savings or pay down debt? We are stretching your dollar with the advice that may help.

To pay or not to pay down debt when you’re also looking to save. It’s a question consumers struggle with. Experts at say it all boils down to one thing – your interest rate!

If you have a particularly high interest rate you want to pay as much onto that account to get the interest rate reduced. The reduction means you get to keep more money. The return there is usually much greater than you’d earn in the stock market or a savings account.

If you can, consider transferring your balance to another account for a break on the interest.

If money’s tight, don’t bother making extra payments on your mortgage or student loans. While it will save you money long-term, it typically won’t result in lower monthly payments. Focus on those high-interest credit cards instead.

Now here’s when to save:

If your debt has a fairly low interest rate, focus on boosting the savings. You want to have 3-6 months worth of expenses saved up as an emergency fund. In case something happens to your job, or it’s finally time to replace the roof! Having that safety net will keep you from adding onto your debt further when problems arise.

Also, if your employer offers a retirement plan. Make sure you’re contributing at least enough to get the maximum employer match! That’s money that will double for you and you’ll thank yourself later for doing that.

WTNH NEWS8 provides commenting to allow for constructive discussion on the stories we cover. In order to comment here, you acknowledge you have read and agreed to our Terms of Service. Commenters who violate these terms, including use of vulgar language or racial slurs, will be banned. Please be respectful of the opinions of others. If you see an inappropriate comment, please flag it for our moderators to review. Also, you can now block any inappropriate user by simple selecting the drop down menu on the right of any comment and selection "Block User" from there.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s