The debate about whether or not to eliminate your debt or save more money depends on a few factors. The first factor is what kind of debt do you have? Do you only have a mortgage or student loans, or do you have car loans, credit card debt, or payday loans? My stance on this subject is based off of the premise that having less debt in my life simplifies it greatly, and it reduces the risk in my life. I think one should consider these things when debating on whether or not to pay more on a bill or put it in savings.
First, what kind of return are you getting in your savings account? If you are putting it in a cheap brick-and-mortar savings account earning 1%, then don’t bother saving money until you have your debt eliminated. However, if you have a rockin’ mutual fund or a good online savings account that earns 5 – 8%, then you can start thinking about socking away some money for short to medium term financial goals.
second, if you have a ton of credit card debt, then stop everything that you are doing with your money and pay off those cards! Pay for the essentials first, like food, shelter, utilities, and clothing, but any extra money after those things are paid for should go to getting rid of those 18% interest rate credit cards, yuck.
Third, evaluate your personal situation. It is tough for someone to give a general rule-of-thumb advice about where to put your money, because everyone has a diffrent situation. It would be nice to not have a mortgage, but there is no rush on that. It is a true investment, and you can reduce your tax bill with mortgage interest. If you feel like you have a volatile job situation, then reduce your debt as much as you can! If you foresee a lot of big purchases in the near future, then start saving a ton of money! The concepts are common sense, but sometimes we need to be bopped over the head with a little good ole’ fashion common sense.
