Home Personal Finance Get Out of Debt or Save- Here’s How You Can Do Both

Get Out of Debt or Save- Here’s How You Can Do Both

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Our culture sets us up for a life of debt. We get loans to pay for our homes and cars, we go to school on student loans and then there are those pesky credit cards. We can have everything we want with a quick swipe of plastic. It’s so easy to fall into the trap. Then reality strikes. The car breaks down and we realize we don’t have the money to get it fixed, let alone savings for the kids’ college or our own retirement. You know it’s time – to build a secure financial future, you have to pay down your debt and start saving.

She Was 25 Years Old and Owed $14,000. Here’s What She Did

 

At 25, Carrie Smith found herself divorced and with a mountain of debt. She realized she was in a tough situation. What would her life be like in 30 years? Instead of crying in her beer, she tackled the mountain and put herself in a position to save for her future.

Carrie realized she had to make sacrifices. She gave up her gym membership, salon visits, dining out, expensive vacations and cable TV. She also upped her small-business accountant income by freelancing as a writer.

Using an online debt payment tool, Carrie devised a budget she could live with and began by paying down her high-interest credit card debt. Her diligence paid off. She was debt-free one year later.

What About Savings?

 

Not all experts believe concentrating solely on paying off debt and saving later is wise. Carrie was young and single. Her quick plan to pay off all of her debt and worry about saving later made sense. But, if you have family obligations, you don’t have that luxury. You have to have enough money for emergencies in the here and now. Financial expert Dave Ramsey advises keeping an emergency fund, preferably in an interest-bearing account, of at least $1,000. Once the money is there, promise yourself you’ll only use it for emergencies.

When emergencies occur, make sure you stay frugal. Purchase only necessities, use coupons and shop sales, just as you normally do.

Know Where You’re Headed

Living a frugal life is key when you’re trying to pay down debt. You may, however, have assets and savings you haven’t thought much about lately. For example, perhaps you participate in a 401(k) retirement plan with your employer. If so, use one of the free online 401(k) calculators to determine where you stand and how small changes you make now have a big impact. If you have an annuity, a deferred fixed annuity calculator can tell you where you stand and where to go from there. Tools like these give you a wonderful opportunity to save for the future and pay down your debt at the same time.

And, the Answer Is …

For people in circumstances similar to Carrie Smith’s, living frugally, paying off debt fast and saving later work. For most of us, emergency funds are necessary. Once emergency money is in place, concentrate on paying off your debt. Don’t wait. The longer you put it off, the bigger your mountain of debt becomes.

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