trapez-finance.org >> How Save Money Or Pay Down Debt

It’s Friday and you just got paid! After sending off that last check to pay for necessities; food, car payment, rent, etc., you have $100 left. What should you do with it? Save it or pay down debt? It’s hard to give a one size fits all answer to that question. Everyone’s individual situations, goals and needs are different and questions need to be answered. First, what kind of debt do you have- mortgage loan, student loans, credit cards? Are you planning to make some large purchases such as a house or car? What are your investment goals/needs? For the next few weeks we will focus on ideas to get your savings, debt, and investing plan in order. First, who’s getting the most return on your savings account?

It’s hard, hard, hard to speak against saving money in any debate, except when you have credit cards charging you 18% interest per month, and you are digging yourself deeper and deeper into a hole because you can only pay the minimum. When you put money in a savings account or a CD (certificate of deposit), and the bank pays you a paltry 2% to 3% interest, they are actually earning much more. The bank uses Your money to lend to businesses, for individual loans, and mortgages, at much higher rates. The banks are making more money than you off your own savings - what number is that on your goals list? If helping the bank make money is not on your list, let’s see what to do with that $100.

Savings Account versus Credit Card

You have $100 to save OR $100 to pay down your debt.

Credit Card Balance = $5000

Interest Rate = 18%

Minimum Payment = 3% or $150 a month

Making the minimum payment of $150, it will take you 226 months to pay off this credit card AND you will pay $4799.06 just in interest.

If you take that extra $100, and increase your monthly payment to $250, you will pay off that same credit card in only 24 months and pay $989.13 in interest. That is a savings of 202 months and over $3800 dollars.

If you put that $100 into a savings account at 4.50% interest, in the same 24 months it would take you to pay off that credit card, you would have saved only $2615.80. (at 4.50% HSBC’s online savings account pays the highest interest rate in the United States)

Is it better for you to save the $100 or dig yourself out of debt? We all have different lives and different goals, but the perfect plan for you has to fit your individual lifestyle and needs. These are Your goals, Your dreams, Your needs; can you afford to lend money to the bank right now?

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