Savings vs Debt Reduction
Here are a few questions you probably have never asked yourself
because the answers seem so obvious. First: Why do you have a
savings account? As the account name would imply, most people have
saving accounts to save money. Second: If you have a savings
account, does that mean you have saved money? The obvious answer
would be "Yes" but let us take a closer look. If you
have credit card debt and are paying double digit interest on it,
and a savings account that is earning only single digit interest,
you are actually paying out more money each month than you are
saving.
If you are earning 3% on your savings and paying 18% on your
credit card debt, you would assume that you were losing 15%. Not
good at all, but in reality, it is even WORSE than it looks on
paper. You have to pay taxes on all the interest you earn in your
savings account while you are paying the credit card interest rate
with after tax dollars. Looking it at this way, you can see why
even when you try to save, it's nearly impossible to get ahead if
you have unpaid credit card debt outstanding.
Now that we have brought this out, it should be pretty clear what
the best course of action for the savings would be. No matter
where you look, getting a guarenteed double digit return on your
money is pretty difficult, but that's exactly what you'll get by
taking your savings and paying down your current credit card debt.
No one wants to use their savings in such a way since it has
usually been saved with the intentions of having it around for an
emergency. What is essential to realize is that credit card debt
is an emergency that will make it impossible for you to ever save
for anything until it is taken care of.
If this eliminates all of your credit card debt, count yourself
lucky and you can move onto other debts that need to be paid off.
If you are like most people, however, you still probably have
outstanding balances on your credit cards. Have no fear...we'll
get them taken care of in the next step.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO
WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION
CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL
ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.
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