To pay or not to pay down debt when you’re also looking to save. It’s a question consumers struggle with. Experts at bankrate.com 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.