Anyone who struggles with debt, especially those who live under the cloud of high-interest credit card or personal loan debt, know that growing a savings account isn’t easy. Sometimes, saving doesn’t seem feasible at all. But ultimately, the faster you pay off your debt, the faster you’ll be able to start saving.
With tax season in full swing and the American Rescue Plan stimulus checks going out to millions of Americans, you might think that applying this additional cash flow to your debt is a good idea—and it is! But, first, you’ll want to make sure that all your regular household expenses are taken care of. If they are, great! You can now begin paying down your debt.
Of course, there seems to be a lot of confusion on whether you should save first and pay your debt later, or pay your debt now and save later. Well, most financial experts urge people to do both if possible. Your savings don’t need to be huge, a few hundred dollars will give you a small nest egg to fall back on if something happens, so diverting funds to both debt and a little bit of savings can go a long way toward stabilizing your finances.
However, if you’re comfortable with your savings in the bank, putting a refund check and stimulus toward debt will help you pay down debt faster. There are several benefits to paying off debt quickly, including reducing interest paid over time (which means also reducing the amount you’d ultimately shell out over time), improving your credit score, and no longer living with the weight of debt on your shoulders.
Temporary revenue streams may not be the end-all, however, and if you’re still struggling with debt, now might be the time to look into a debt management program. Credit counselors will work with you and your credit card companies to consolidate your debt, lower your interest rate, and create a monthly payment that is affordable and customized to your specific situation. This will help you be able to pay off your debt quickly and efficiently—usually in three to five years.
Once you’ve paid off your debt, you’ll be better able to manage your finances and continue building a savings that will be there for emergencies to fall back on, so that you can rest easy knowing your financial future is secure.