The years after the COVID-19 pandemic have been hard for many households in the US and around the globe. Some can barely make ends meet after a job loss or pay cut, and many have accumulated alarming debt. Debt can be overwhelming and even jeopardize your ability to save money. As the world recovers from the devastating pandemic, people are torn between paying off their debt and saving money. This article examines the benefits of both strategies, so you create a feasible plan to help you meet your financial goals and attain financial stability.
Benefits of Paying Off Debt
There’re many debt repayment strategies, and the best depends on the type and amount of debt and financial state. You can use the snowball and avalanche methods or consider a personal loan from companies like Priority Plus Financial to consolidate your debt.
The snowball method prioritizes small debts before moving to bigger ones, offering immense satisfaction and motivation. On the other hand, the avalanche method starts with loans with the highest interest regardless of the amount. Whichever method you choose, be consistent and pay beyond the monthly minimum.
Here are four pros of paying off your debt.
- You attain cost savings by reducing the interest payable over time, especially for high-interest loans and credit cards.
- You improve your credit score, increasing eligibility for high loan amounts and low interest in the future. This can be helpful if you want a mortgage in the future since a good credit score is fundamental.
- You focus purely on savings when you clear your debt
- You get greater peace of mind and eliminate the debt-related emotional burden.
Pros of Saving First
While you may want to clear your debts soon, you also need emergency savings to cater for unexpected events like illness and income loss. Among the biggest lessons from the COVID-19 pandemic is the need for an emergency fund, especially in uncertain times. Strive to save three to six months’ expenses to avoid financial problems during a crisis.
Good ways to save money include creating and sticking to a budget, cutting expenditures, and negotiating bills. You harness several benefits by prioritizing saving, including;
- You leverage compounding interest on your savings. The more the savings, the more the interest
- You attain financial goals faster instead of waiting to pay off your debt first. With the saved money, you can purchase a home, take vacations, and return to school.
- You get a financial safety net and avoid accumulating new debt if an emergency arises. New debt is counter-intuitive to your debt management plan.
Finding a Balance That Suits Your Needs
Both saving and paying off debt are fundamental, and you cannot choose one over the other in the post-pandemic era. The secret is identifying a balance that works for you and your unique needs. Combining strategy, planning, and adjusting spending habits can help you balance repaying debt and saving.
Consider paying off a considerable part of your debt while saving a few bucks. This way, you become debt-free promptly and sleep peacefully, knowing you have savings for a rainy day. Once you clear your debt, you can redirect all monies previously used for debt to savings.