You may find yourself in a situation where you could take one of two paths in your journey to financial freedom.
In this case, I am talking specifically about the decision to save money (for a down payment on a house, a car, or school) and paying off existing debts to free up more money in the future.
Generally speaking, if you have high-interest debt, you should pay that off as soon as possible. With any interest-based debt, you are throwing money at your lender every month for the privilege of borrowing from them.
Let’s say (hypothetically) that you have a $15,000 balance on a credit card with a 20% interest rate. You’d be looking at around $250 a month in interest. Making only the minimum payments means you are paying over $3000 a year in interest alone.
That’s enough to pay for a modest vacation!
If possible, it’s a much better use of your money to make the biggest payment you can to knock them down one by one.
The stakes are a bit lower with low-interest debts, but the principle is the same – you’re paying more per month to line the pockets of a credit card company.
I know that the impulse to save can be strong, and you may be tempted to start saving now, but waiting longer to pay off your debts could mean a difference of thousands of dollars.
Wouldn’t you much rather see that in your account instead of lining your lender’s wallet?
Well, we can help you figure out the best strategy for knocking out your debts for your particular situation and create a savings plan, too. Just give us a call at 513-563-PLAN (7526) or go online to schedule a quick chat with us!
Nikki Earley, CFP®