If you have money left over after paying your bills, you might wonder whether you should save the extra funds or use them solely to tackle your debt. There's no one-size-fits-all answer, but U.S News suggests asking a few questions to kickstart your decision.
Photo by Scott McLeod.
Writer Kimberly Palmer lists five questions you should consider:
- Do you already have an emergency savings account? If not, this should be a top priority.
- How much is your debt costing you?Crunch the numbers and figure out how much you're paying in interest rates each year.
- How much would your savings earn you? Whether you're investing or simply earning interest in a simple savings account, calculate how much your savings will earn you each year. Compare this number to Question 2.
- What are your expected earnings in the near future? If you're expecting a boost in income, you might have more flexibility to pay off debt and save at the same time.
- What are your financial goals? You may need cash for your goals, but being debt-free is a plus for some goals, too. Weigh your options against those goals.
The answers to these questions will vary, and they might be complicated. But the questions are a simple enough place to start. Check out Palmer's full post for more detail on each question.
5 Questions to Help You Decide Whether to Save or Pay Off Debt [U.S. News & World Report]