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Should You Save Extra or Pay Off Your Debt?

If you happen to have some money, you might think it is wiser to save extra or pay off your debt. Each of these options has its advantages and disadvantages. 

Individual circumstances determine what action to take in these situations. However, if you decide to save extra rather than pay off your debt, you can cater to essential expenses and pressing needs.

If you decide to pay off your debt rather than save some extra cash, you will get your debt off the way and channel subsequent income to your personal needs. Each option has its advantages, but it is better to do both. 

If you have some extra cash left in your budget, it is advisable to save some of it while taking some chunks off of your debt. 

When Can You Pay Off your Debt and Save Some Cash 

You can save some money and still pay off your debt if:

• Your mortgage payment is not suffering. 

If you are consistent in your mortgage payment, you can save up some money. 

While the mortgage payment continues so that you have the hope of having the entire property to yourself, you can save up some money to cater to other pressing needs. Your house will be balanced in every area.

• Your monthly payment on your credit card is stable. 

If you can pay back the bill on your credit card every month, you can save up some money. You can pay your credit card bill monthly to show that you are financially stable enough to have some savings.

• There are no other loans that you have to settle. 

If you have other loans with high interest, it is better to pay off one of them than to save your money, especially when the interest on it is above 7%. 

With a loan and high interest eating up your money, saving that money is not a smart move. It would be smarter to work on paying off the high interest loan first. 

Why You Should Save Some Cash While Paying Off Debt

• It gives you financial freedom. 

You will not be financially free if you are a debtor. At the same time, you will not be financially free either if you do not have savings. 

Doing both gives you financial freedom because you get to pay off all your debt and have money to care for other needs with time. Imagine paying off your debt for some years, and at the end of it, you have nothing to fall back on. You will start looking for money to take care of yourself and your family. 

• It makes you prepare better for retirement.

At some point, you will retire, and this is where you need a financial stronghold. If you have been paying off your debt while working with nothing to save, your retirement will be problematic. 

At the same time, if you were saving and did not pay off your debt, you would be a debtor in retirement. Neither situation is good. You may be better off in retirement if there is no debt hanging around your neck and you have some money to do whatever it is you want to do.

• It gives you the strength to attend to emergencies. 

There is a reason why money is designated for emergencies when you draw out your budget. It is because emergencies will always come, and there will always be emergencies. 

Emergencies require money. If you pay off all your debts with no savings, you will be financially incapacitated to respond to situations as they arrive, even if they are life-threatening.

• It will help you make progress. 

Making progress depends on having money to respond to situations and acquire what you and your family need. For instance, you need money to send your kids to school, get new clothes, go to work, and get by daily. 

Life will almost be stagnant if all you do is pay off debt with no progress in other areas of your life. With some savings, you can get by daily and advance in every area of life. You will do this better if there is no debt on your neck. 

• It gives you financial stability. 

An essential part of financial stability is having some cash left after attending to your financial needs. With some savings in your account, you can be financially stable. And even better when there is no debt. 

Conclusion

Deciding whether to save extra or pay off your debt is an individual thing. However, everyone benefits from doing both when possible. Saving some money while writing off your debt gives you financial freedom, prepares you better for retirement, makes you better prepared to handle emergencies, and makes you financially stable.

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