Debt can never be good. Furthermore, saving and having debt at the same time is like a dual edged sword and one which must be avoided at all costs. It is principally true that debt will always cost more than what you will make with your savings and thus it makes sense to pay off your debt with your saving and get out of the typical trap that banks and other financial institutions promote it indirectly and lend the same money back that you saved, making a buck for themselves!

Some of the exceptions to this rule are in situations when there is a penalty to pay back the loan in advance. Other exceptions include when you have an almost interest free loan…in this case it makes sense to stick to this debt.  Though it might sound surprising, there are a number of options to get to this stage….and the 0% interest credit cards are the most common option.

Keeping an emergency fund is important but not at the cost of debt. An emergency may or may not arise… and when it does you can fall back on your debt-free status and take on debt to service this emergency. Debt free credit cards come in very handy in such situations and then it is a debt which can be serviced over a period of time. Hanging on to savings for an emergency which might never arise is not a financially wise decision. This logic is based on the assumption that you will be able to get credit cards to take on your emergency requirements.

The cost of debt should be evaluated and the ones which are most costly should be paid off first so that you can actually save interest. Once that is done, you can start looking at your lower interest rate debts and see if they are beneficial to maintain. Financial discipline of managing the interest rate earned and spent result in good debt/savings management. So don’t focus on the principle but take a look at the yearly cost of the debt as compared to the interest you earn on your savings.

Knowing your personal habits of spending also help in paying off debts…if you feel paying off credit card debt will result in more spending in the next couple of months then you should just go ahead and get rid of them. After all, this is the best traditional advice which can be given when it comes to debt management!

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