Do you have a few hundred dollars of disposable income each month? If so, where should you put it—into a savings account or toward paying off debt? Millions of Americans find themselves in this predicament. If you’re juggling debt while also worrying about building a rainy-day fund, this information can help you decide which option will save you the most money.
When to Prioritize Saving
Here are the top scenarios when it makes sense to save first and pay off debt later:
- Your debt has a low interest rate: While credit cards typically have high interest rates, car loans and government student debt tend to come with low APR. You don’t need to rush to pay these off, especially if the next two points also apply.
- You have access to an employer-matched 401(k): Plan to contribute the maximum employer match amount. If you don’t, you’re turning down free money. The earlier you start saving for retirement, the more compound interest you’ll earn, so even small contributions now could have big dividends in a few decades.
- You currently have no emergency savings: Continue to prioritize saving over paying off debt until you have at least three months’ worth of expenses set aside for emergencies.
When to Prioritize Paying Off Debt
Once you have established basic savings, focus on getting out of debt to save money. Here are some tips:
- Pay down high-interest debt first: Anything above 15% APR demands your immediate attention. These may include credit card debt, payday loans, and private student loans.
- Refinance your existing debt: Mortgage rates are at historically low levels, which could make now a great time to refinance.
- Look into income-based repayment plans or loan forgiveness: Federal student loans may qualify for these incentives.
- Consolidate your debt: Explore your options for credit card balance transfers. This may allow you to put all your debt in one low-interest place for easier debt management and fewer charges.
- Live within your means: It’s acceptable to put a $1,000 TV on a credit card to avoid carrying around that much cash, but pay it off as soon as possible to prevent accumulating interest. Treat your credit card like a debit card—in other words, pay off purchases immediately—to avoid going further into debt.
In the end, your best bet is to strike a balance between saving and paying off debt. Still, during trying times, you may need a quick influx of cash to get you back on your feet. That’s where VIP Title Loans comes in! With our low rates and longer terms, you owe less interest and have more time to repay your debt.
We also offer title loan buyouts to help you get out of bad, high-interest debt. We put more of your monthly payments toward the principle balance, so you get out of debt faster. Apply with us today to find out more about what sets us apart from other title loan companies in Texas.
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