Money can fluctuate upward and downward faster than the weather changes, which makes it difficult to know how you should be handling it. Is it better to save it for a rainy day fund, or should you pay off your debts while you have the extra funds?
This tricky question has plagued the minds of people worldwide, and sometimes the answer isn’t that simple. You could be in a situation where you have $10,000 in debt and suddenly come into $10,000 in cash. There are benefits to both options that we’ll be covering throughout this post:
Reasons To Save
It helps to have extra funds available in case an emergency arises. You may have to suddenly spend a large amount of money on a dental procedure, or perhaps a pet needs treatment or medication. You’ll be thankful that you have an emergency fund backup in case these types of situations arise.
The emergency doesn’t always have to be medical; it can be financially related. We’ve all had a moment in time when we had to drop a significant amount of money on something like vehicle repairs or replacing an in-home appliance.
It’s also important to have an emergency fund in case you ever lose your job or experience a decrease in wages. These are trying times we live in, and it’s always a wise choice to set some money aside for emergencies.
The stresses that come with living paycheque to paycheque can be unbelievably stressful. One of the more obvious benefits when it comes to saving money is that you’ll have access to funds. This way, if you ever need to go on a trip, relocate to a new province, or simply require funds to buy a car, home, or any other significant financial choice, you’ll have the money for it.
We understand how hard it can be to save enough money for extra expenses. The easiest and most effective way to save is to allocate a certain amount from your paycheque and put it into your savings account.
You can set up automated payments each month or whenever you get paid; you can set how much you want to be taken off your paycheque and transferred into your savings account. If you don’t want to use an automated payment method, you can also deposit the money yourself before you make any other purchases.
Pay Off Debts
If your budget permits it, giving yourself a year or two to save up enough money to pay off debt can have many perks.
You can start by making the minimum payments each month while collectively saving some more on the side. Everybody has purchases to make in their day-to-day lives. Pooling all of your money into your debts at once can affect anything from grocery purchases to other debts, like a car or mortgage payments. If you have more than one debt, try to prioritize and focus on one at a time.
Racking up a year’s worth of interest may be a small price to pay to eventually clear your debt.
Here are some tips you can utilize to help with the money-saving process:
- Keep track of your spending habits.
- Auto deposit funds from your paycheque to your savings.
- Cut down on any other expenses such as streaming services, ordering food, etc.
- Separate the things you want from the things you need.
- Review your insurance policies to ensure you aren’t paying too much.
- Try cutting back on how much you use your credit card, as it’ll just increase your monthly payments.
Reasons To Pay Off Debt
Lower Monthly Payments
If your goal is to decrease your monthly bills to free up some extra cash, then you may consider paying off any high-interest debts first. Paying down your debt can make it much easier to save your money down the line.
However, paying off debt isn’t as easy as it sounds. You may have other debts that could be standing in the way of your focus on another. If you find you’re having trouble managing your debts, you can consider refinancing your debt at a lower interest rate. If you’re struggling with a mortgage, you can potentially discuss the option of refinancing to lower your interest rate, as it can become increasingly difficult to manage.
Avoid Higher Interest Rates
One of the faster interest rate increases comes from credit cards. It can be very easy to neglect to keep up with your monthly payments, which can result in higher interest rates as the months go on.
Paying off your credit card debts as soon as possible will simply make it so that you won’t have to spend more money than you need to. Sure, it’s a nice fallback if you can’t pay for something right away, but you may soon regret not paying it off when you see those numbers rise. Plus, it’s nice to not have to worry about paying an excessive amount of interest when it comes time for tax preparation season or unexpected financial losses.
Earning a better credit score by reducing your debt can go a long way. While having your financial savings is important, they won’t do much in convincing lenders to lower interest rates. That’s where your credit score comes in handy.
If you’re ever looking to take out a loan, purchase a vehicle, or get homeowners insurance, your credit score will show whether you’re reliable or not when it comes to payments. You’ll begin to lose eligibility for long-term loans and better interest rates if you accumulate too much debt.
Every financial situation is different when it comes to deciding whether you need to save or pay off those debts first. You can take some great advice from Winnipeg debt services and discuss the right options that fit your unique dilemma. Your finances are paramount. Look into debt solutions today and start saving money for tomorrow.
My Life, I Guess is a personal finance and career blog by Amanda Kay, an Employment Specialist and older millennial from Ontario, Canada that strives to keep the "person" in personal finance by writing about money, mistakes, and making a living. She focuses on what it’s like being in debt, living paycheck to paycheck, and surviving unemployment while also offering advice and support for others in similar situations - including a FREE library of career & job search resources.