The key to financial freedom is learning how to manage your money. So, when you know that you have debts that need to be paid but you also realize that building up a savings is vital, what do you do? Truthfully, there isn’t going to be a default answer that is going to fit everyone’s circumstances. On the other hand, there are general rules and tips that are pretty much universal. Read on to learn whether you should focus on paying your debts or saving more.
Consider How Much Debt You Have
Your credit cards, student loans, mortgages, personal loans, and other debts all added together could amount to a little or a lot. Having significant amounts of debt may prevent consumers from being approved for the financial products they need to become more stable. Large amounts of debt also lead to lower credit scores, which lead to consumers paying more on credit card, mortgage, and auto loan interest rates. Having some debt isn’t a terrible thing, but if you are struggling to keep up with your bills, then you might want to pay it down instead of prioritizing saving money.
Evaluate How Much You Want to Have in Savings
People who have a healthy amount of money in savings worry less about emergencies, and generally feel less stressed about financial concerns. Once you begin to save money and see your bank account balance grow, it can actually feel so good that it literally becomes addictive. Learning to make saving money second nature makes you less likely to spend your money on frivolous things and more likely to start looking at your personal finances in healthy ways.
Making a Financial Plan That Works for Your Life
Regardless of whether saving money, paying debts, or a combination of the two is a priority for you, knowing what you are going to do with your money in advance is a very smart idea. Having a budget can help you to avoid becoming 30 days late on your bills, which is a move that will undoubtedly hurt your credit score. Remember that becoming financially responsible takes time, so don’t fret if it is going to take you a couple of years to pay off your debt or come up with a good amount of money in savings. If you have a plan laid out, then you will have a clear path to a solid financial future.
Ultimately, paying off debt can be just as critical as saving cash. Those who may be drowning in debt will have to dig themselves out before they can save. Anyone who frequently gets caught in financial binds may instead want to prioritize saving. And finally, if you stick to your budget and make changes where they will be helpful, you can do both. Your credit score will improve as you eliminate debt, which will enable you to qualify for better and more affordable loans. Determine which of the two will help you to get full control of your finances and make a decision.