To Pay Off Debt or To Save?

Simple answer is to try and achieve both. Not the most helpful answer we know, and sitting on the fence doesn’t help in finding a solution to the overarching question. However, that is the ultimate endpoint – to be in a position where we are debt-free and have the firm hold on our ability to save. Now, which one to focus on more – clearing debt or building savings? In reality, it’s a balancing act, deciding where to commit our resources and where our priorities lie. Just like any decision really. The pros and cons must be evaluated before a decision and action plan is determined.

It’s a matter of tailoring a strategic plan to suit you. Ideally, we would all like, and strive to be debt-free and optimise our savings balance. However, we don’t live in a perfect world, and we often find ourselves burdened with a range of debts and feel our saving balance always has room for improvement. You’re certainly not alone, with this way of thinking.

We present the case for each option – clearing debt or boosting savings, and better yet, how to maintain these habits, preserving optimal ground of staying debt-free (as best as we can manage) while still making heartening contributions to your savings account.




The case for Saving first

First thought here is toward building an emergency fund. You know the recommendations you come across online and from all the financial experts in the field. From Uncle Frank’s sound advice to your mate who’s just invested in Bitcoin, the general ruling goes something along the lines of having 3-6 months of expenses put aside in case you are all of a sudden faced with a financial crisis. Or perhaps even aim for a figure as a starting point. Put aside $1000 just in case the odd financial dilemma rears its head. Car repairs are the perfect example – you know the feeling when you take your vehicle in for a warrant or service and then all of a sudden you are hit with the cost of paying for 2-3 new tires, fixing up the radiator, new brake pads, a wheel alignment, an ignition coil and spark plugs. Not sure what half them things are but fairly sure once the invoice arrives in the post, it will be alarming.

The central premise of having a saving focus over clearing debt depends on your ability to contribute a concrete proportion of your income toward savings. And, just as, if not more importantly, refraining from dipping into this account and making withdrawals. If you are the type of person who is tempted to dip into your savings account on a regular basis perhaps tackling debt first is your best option. Otherwise, ask yourself how you can improve your personal saving habits? – Perhaps look into our options. A Christmas Saver would be highly recommended. An account whereby automatic contributions are made to the savings account which is available for use come Christmas time each year.





Tackling Debt

Chances are you have multiple avenues of debt. Think; student loans, mortgage, car loan, repaying the 50-inch flat-screen, an overdraft, as well as a burgeoning credit card balance. Forming a strategy to overcome debt is certainly a wise decision that would be highly recommended. Have you heard of the snowball or avalanche methods of tackling debt? Find an approach that works for you. Like the idea of paying off the small debts first – the easy wins if you like, gaining psychological victories along the way before chasing the larger dollar-value major debts? Then the snowball repayment method is right up your alley.

Alternatively, the avalanche method is for those looking to get on top of the debts with the highest interest rate first. This may be by way of eliminating debts incurred by a high-interest credit card first before going after the debts with lower interest rates. The key benefit of this tactic is you lessen the effects of the high-interest debt, the rates that sneak up and steadily build over time.

There is no right or wrong option here between attacking debt through the snowball or avalanche methods. Work out your own degree of motivation (and tolerance) and incorporate a plan as part of your budget to diminish the burden of debt.



To pay off debt or to save? Sounds simple enough. Surely, you would think the answer would be to pay off debt first? Based on the proviso and general consensus that the interest you earn (on savings) is generally lower than the interest incurred concerning debt.

Simply put, if the interest you earn is less than the interest you pay, you will lose money.

Sound logic, but the importance of saving can NOT be neglected and it’s a habit, often promoted from a young age that can act to prevent us from getting into debt in the first place.  We don’t want this to happen. And we definitely do not want this debt to spiral out of our control. With personal finances, control is paramount.

If you are in a situation where you are bound by debt while struggling to make saving contributions ask yourself how you got yourself in this situation? Essentially, in this situation you have lost control. Look to make amends. Rectify the issues and learn from past mistakes.  Perhaps you have gone astray from your budget? Perhaps you are living beyond your means? It cannot be stressed enough to get on top of your debt and regain control. To retain control and give yourself the affordability and confidence to make the crucial personal finance decisions.