Does Building Cash Savings Or Eliminating Credit Cards Balances Come First?
When you have limited income, it can be hard to decide if is better to cut out credit card debt or build a savings account. You may have to make some tough decisions, but hopefully you can work on both at the same time. Look at some strategies you can use for a better financial life!
In the long run, is it better to pay off debt or save more money? Of course, both of those are great goals to have. But how do you decide which one you should concentrate on first if you have limited funds?
If you can save more money, you can probably reduce your need for debt in the future. If you have some cash to handle problems, you will not have to pull out your plastic every time there is a problem. We all want to have a nest egg put away so we can think about having a comfortable and financially secure retirement.
However, here is the problem. If you have to service a lot of high interest rate debt, you will have a lot less money to save. If you have to allocate a large portion of your budget to service that debt, it may be very hard to make contributions to your retirement fund? Of course, you still have the normal expenses of daily living. You need to stock the fridge and pay the light bill while you are trying to implement your financial plans!
In addition, people with lower debt balances usually can get better credit terms. If you have good credit, it will be a lot easy to get low interest financing. Future mortgages, car loans, and other credit will be cheaper for you.
There are really only about three solutions to this problem. When you have limited resources, every plan you come up with will require time and sacrifice. You have to decide how important paying off debt and savings are to you and your family. Then you can begin to come up with a plan. The plan may not work in a few weeks or a few months, but over time you should start to be better off.
First, you should try to figure out how you can balance your savings goals with your debt payoff plan. I would suggest that you always try to make more than the minimum payment, even if it is only a few dollars more. I hope everybody works hard to build an emergency fund. Even a few dollars a month will help you more than saving nothing. Given some time, and any luck at all, and you will be better off in the future.
You may be able to find a credit card balance transfer offer too. If you can replace a high interest rate with a lower one, your payments should be lower too!
In some cases, the answer is just to find more money. There are two ways to do this.
Look at your monthly bills. See if there are any places that you can reduce your spending. You may be able to, for example, get a better deal on your phone service or cut out your weekly trip to the movies. You will find that fifty to a hundred dollars a month in savings can be a big help.
Secondly, you may consider some type of moonlighting job to earn extra income. Lots of people offer to do home repairs, watch kids, or even walk dogs in order to add a little more money to their family budget!
Paying off debt and saving money are both worthy goals. Nobody said they would be easy. But if you can try to do both, you will be much better off in the long run.