Have a question about finance?
Should I pay off debt or save?
I have always been a fan of paying down debt first, especially in our current interest rate environment. Just think about it for a moment. For every dollar you pay off in debt, you earn a rate of return equal to the interest rate on that debt.
Having said that, it's also important not to completely drain your savings. It's important to keep SOME level of savings, and also have a credit card to fall back on in an emergency.If possible, I would leave your savings where it is, and take any excess income you have to increase your debt paym...
There are several factors to consider when weighing out debt-paydown versus savings and investment.
The first one which often comes to mind is interest-rate and/or return on investment. For example, if your debt is costing you interest at 4%/yr, does it make sense to pay that down when you have an investment or alternative which pays 5%? It might not - of course, there are risks - will the investment which returns 5% keep returning that much?
The second consideration, which may really be a refinement of the first, is taxes. ...
First off ... congratulations on building up that savings stash! Hopefully, you feel good about it.
David Meyers just gave an excellent, albeit lengthy and complicated response. As always, the answer to the question depends on a lot of variables for your case.
My preference is to keep the concepts as simple and user friendly as possible.
First step - Cash reserves. You never know what issues could pop up. Generally, I believe that if the cost of the debt is reasonable (and even with today's historically low rates, your school debt intere...
Make a list of all your debts.
List them by amounts owed and the payment due in descending order.
Create a budget for debt reduction.
Make minimum payments on all of your debts except the smallest one.
Subtract the sum of the minimum payments from your total budget and apply the difference to the smallest debt.
This should allow you to pay off this debt in record time. Then take what you paid down on the smallest debt (after you pay it off) and apply it to the next smallest debt on your list including the minimum payment ...
Great question! There are always three aspects to consider when paying down debt: 1) the math, 2) personal bias, and 3) everything else to consider.
In your situation, the math is pretty easy. If you're paying 4.5% for the money and you're only earning 0.9%, it's costing you a net 3.6%. The math says you should pay off the loans.
A good example of where a loan makes sense today is buying a home. You can get a 30-year loan with an interest rate of less than 4.0% today, but houses are appreciated 16% over ...
This depends on a lot of factors, but a general rule of thumb is that you should pay off debt if the after-tax interest rate is higher than your expected after-tax return from investing. There is some certainty on the debt interest rate while there is little to no certainty when it comes to investments, so it may make sense to stick with the sure thing and pay down debt. What you don’t want to do is pay down too much mortgage debt which results in owning too few stocks during your working years. Your expe...
In almost every case, paying off debt first, before saving, is the right choice. This is especially true in today's low interest rate environment where banks are essentially paying almost nothing in interest on savings accounts, CDs, etc. It makes no sense to pay 10%, 15%, 20% or more in interest on revolving credit card balances while earnings 0.1% on a savings account. All excess cash, once an emergency fund has been established with a minimum of 3 months of total monthly expenses, should be paid towards the highes...
Have a question about finance?
- I can't afford to pay off all of my debt. How do I escape payday loans?
- How can I settle a student loan that's not in default?
- How do I put money away for my sons future?
- I have about $15k in federal student loans with an average of 3.5% interest at a 10 year repayment. Should I still pursue a...
- I have $72k in student loan debt and $90k in savings. What should I do?
Disclaimer: NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty. Additionally, this site may be compensated through third party advertisers. However, the results of our financial services tools, blog content and reviews are based on objective analysis. For more information, please see our Advertiser Disclosure.