Wednesday, February 24, 2010

Money Tip: Paying off Debt vs.Savings

I've heard so many different views on this subject. That I wanted to voice my own today.

Here it is plain and simple:

Pay off your debt

I've read so many books and listened to so many financial advisors about this subject. Personally, I think that paying off your debt is so important. For us, we're probably never going to be rich so everything is about our Monthly Budget.

That being said, ofcourse, you have to have an emergency fund. If the car breaks down and it's $500 to fix it, you don't want to put that $500 back on a credit card. We like to keep at least a $1000 in our savings. Notice I said, at least, some months are tougher than others and some months we decide to have a little more fun than others.

So that's my opinion. Tell me yours, Pay off Debt or Put money is Savings? Do you have an emergency fund? How much do you keep in it?


MB said...

I agree with you 100%. Pay off your debt and have an emergency fund.

How much of an emergency fund? That depends on what kind of emergency you're planning for.

Our emergency fund is the "Oh, we both got laid off and now we're living on savings and unemployment to pay our mortgage and eat." - so we're at one person's half a year salary.

We plan for this because we both work in the same volatile business. Other people don't often need to plan for that.

Kate said...

We just paid off a ton of our debt, and it is making it possible for us to save more.

Kate said...

I think it depends on the type of debt you have and your job stability. If you have an unstable job and your only debt is a student loan with a low rate, then saving makes more sense. But if you have high interest credit card debt (or even a high auto loan - I saw one at 20+%!) and a stable job, then get it paid off ASAP!

Right now we're simultaneously working to pay off our car loan and save more. Saving is taking a higher priority right now since job stability might be an issue, but we certainly aren't ignoring the loan either.

The Domestic Princess said...

I'm loving all the feedback today on this subject.

Kate- I think you're right. Everyone has to do what is best for their monthly budget. Chris and I have been there, trying to pay off and save at the same time. We know it can be trying.

Kaitlin - Congrats! We know how hard that can be.

Mrs. B - Thanks for sharing your strategy.

Kim3278 said...

I think you are right too..but we religiously follow DR and have for quite some time. I am happy to say that May 8th we will be screaming WERE DEBT FREE (except for the house)--with an emergency fund and a car fund and a baby fund.

Unknown said...

I agree, pay off the debt. We have 1,000. in an emergency fund and we do use it often but try and put it back as soon as possible.

We never seem to get ahead but we don't go in deeper either. I suppose we are making a bit of headway, but oh so slow... :~

Lauren @ withTWOcats said...

I say both! I put a certain amount toward debt, and a certain amount toward savings each month. (Although debt gets the larger portion by far). If I have any extra leftover at the end of the month, it also goes into savings.