I guess most of us dream about living without debt. If you are like me, you sit down and pay bills, and reckon about how much money you would have if you did not have to service credit card bills, car loans, or a mortgage. Maybe a picture of a shack on an island even comes to mind.
I really reckon that those end of the world books became well loved as an escape. Even if something dreadful happens, like a zombie invasion, it would still wipe out all of our creditors too.
But you really have to look at your debt. Some people should worry about stashing cash instead of reducing their mortgage or car loans. I cannot give everybody a right answer, but only say that it depends upon your situation.
Go Credit Around
Maybe you can improve your debt situation even if you cannot eliminate it. It is tough these days, but many people can still find offers for better interest rates for credit cards. Even a few percentage points lopped off, can save you hundreds of dollars every year.
Look at high interest rate credit cards. It is not unusual to see 25% interest rates these days. If many Americans carry $8,000 in debt, that means they have to pay $2,000 just to service it. If you could reduce that interest rate to 12.5%, you could save $1,000 every year without working any extra hours.
Make Sure You Save Too
A savings account can keep you from having to borrow more money. If you have to take a kid to the dentist or emergency room, you will be pleased to be able to right a check for your part of the payment. I would not tell anyone to pay off all debt if it means they have no way to get cash.
Make A Plot You Can Stick With
You need to have a goal, and a way to reach that goal. Consider putting an extra fifty dollars toward paying off loans, and then allocating an extra fifty dollars toward your emergency fund. Even a modest amount is better than nothing.
Try to make your goals realistic. Even if you can only spare $50, that money will help. But if you plot to set aside five hundred dollars, and then you never get around to it, you will not be better off.
Evaluate Loans vs. Investments
A person with a lower interest rate on their home, but who also has a higher interest rate savings account, may do better by paying off their mortgage the slow way. If they pay six percent on a home loan, plus get a tax deduction, this will probably be better than breaking into a high rate investment account.
Also consider taxes. You can deduct mortgage interest, but you have to pay taxes on your gains.