Which is better: saving money or paying off debts?
Which is better, save money or pay off debts? See in which situations each option is advised.
Paying off debts should be the priority of anyone.
This is because interest accrues and, with each delay, it gets higher. But is there any situation where it is advisable to save money instead of paying debts?
The answer is probably no. This is because the interest on debt is usually higher than any investment, meaning your money yields less than the amount due. In the end, you lose.
But there are some cases where it is advisable to save or invest rather than repay a debt.
This only happens when the interest on debt is less than the profit on income. It is rare, but can occur, for example, with mortgage.
In a hypothetical situation, suppose you have a mortgage and get enough money to pay off the debt. Calculate and see if the value can yield more in any investment mode.
But such cases are extremely rare. Indebted persons, particularly credit and overdraft accounts, should give these debts top priority. Because it is extremely unlikely that any opportunity will earn more than the high interest rates charged on these modalities.
Beware of traps
Extreme caution must be exercised with traps. Often indebted people choose to invest their money in unsecured business and perhaps too good to be true. When it comes to investing the rule is always: the higher the profit, the higher the risk. And those who owe can’t afford to venture out and lose even more.
Claire Wall was here at Legendary and taught how to choose the best investment. Check-out:
How to get out of debt
If you have debts with overdraft, credit card or expensive financing, it is advisable to exchange expensive debt for a cheaper one.
To do this, add up all your debts and try to negotiate some cash discount. Then make a loan with lower interest rates than your current debt. This way you will know how much you will pay per month and get programmed.
Of course, it is also important to save and cut unnecessary costs. You can cancel subscription tv or avoid restaurants.