Save money or paying off debt first? Some may answer this question incredibly fast and have an easy answer for it. However, if you are asking this question, you are making the correct move by showing your enthusiasm to knowing more about conquering your finances.
If your answer to the question is focusing on paying off debt first, then how about saving money? Not saving any money for a rainy day can be dangerous. But in the meantime, only saving money but not clearing your debt does not make any sense as well since the interest charges from your debt may increase and that can cause you to lose more money in the long run.
Well, the truth is, there is no actual answer that suits the vast majority of us as different people have different financial needs.
That is why we strongly recommend that you do both at the same time to play safe. Here are some points that we’ll break down for you:
1. Calculate your monthly expenses
2. Solidify your debts
3. Pay your debts and save money at the same time
4. Clear your debts when you spared enough
Calculate your monthly expenses
You should know how much you have left after paying off bills, rent, and living costs, and what can help make that simple for you? A budget. A simple excel sheet, notebook, or smartphone application will be good enough to note down your daily and monthly expenses. From there, you are able to track the leftover from your disposable income.
It is useful as well if you cut down excess expenses such as entertainment and make proper adjustments to your lifestyle. Variable expenses are necessary costs, but they can be flexible as you can adjust how much you spend on them. For instance, you can look for various ways to cut down your grocery bill, or even reduce certain utilities, especially electricity.
This will make space to finance your savings and debts repayment portion later on. It might be hard at first but you will be thankful later!
Solidify your debts
Try your very best to solidify your debts from multiple credit cards, personal loans, student loans, or even illegitimate loans as carrying multiple debts is harder to clear than a single debt.
As a suggestion, you may try solidifying your debts with a balance transfer that is only applicable to credit cards. A balance transfer is a credit card feature that allows you to transfer your current outstanding credit card debt to another credit card which offers either a lower or even 0% interest rate. The idea is for you to solidify all of your credit card debt into one credit card that offers a much lower interest rate.
Let’s look at an example. Bob is now paying RM10,000 on a credit card with an 18% interest rate. With a balance transfer to a credit card that charges 0% or 3% interest rate, he will pay less on her monthly payments because of the lower interest rate.
You can do likewise by taking the same action and apply for a credit card that has a good balance transfer plan.
Pay your debts and save money at the SAME TIME
When you are done with solidifying your debts, you may be able to set aside a fixed amount of your extra money to repay your debts. For whatever is left, it is vital to spare some money every month until you have saved an equivalent to 3 months of your present salary.
Any extra money you have in your financial plan ought to be directed to your emergency savings until you had reached one of those thresholds. It will not only put you in a better financial position but as well make your whole financial situation more tolerable, especially when you had done clearing your debts.
Clear your debts when you have spared enough
When you have spared enough of emergency savings or funds, you should start organizing the clearing of your debts as quickly as would be prudent.
Interest rates can work both ways for you. You should work your way to clear debts in order to make your savings in fixed deposit and unit trust meaningful. Eventually, always determine the advantages and disadvantages of either paying up your debt first or saving money, especially to your very own circumstance.
Read more: 7 Effective Ways to Get Rid of Debt Faster