Financial Tips on How to Juggle Between Saving and Paying Down Debts

| February 26, 2014 | 0 Comments

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A good personal financial management system involves paying off debts and at the same time saving some amount of your earnings for the rainy days. While this is a good financial management principle that all of us know, it is a difficult goal to achieve. It is a common dilemma to decide which should be your priority between saving and paying off debts. Personal finance managers will tell you that both are important financial goals if your objective is to reach the retirement age debt free. However it is possible to manage both with a sound debt management and personal finance management strategies.

Paying off debts can be problematic

The risk of mainly focusing your personal finance management in paying off debts only is that you will likely find yourself resorting to more debts in case you need to pay for important expenses without a savings to turn to. In the long run, you will find mounting debts that continue to pile up thereby preventing you from liberating yourself to become debt free in the future. Starting saving earlier no matter how small is a smart way of saving some extra money that may come very handy in case of financial emergency. The long years of setting aside a small percentage of your earning while at the same time spending more to pay off your debts is considered to be a more sound debt management system that you can observe as part of your personal finance management.

The risks of focusing on savings only

Saving more and paying less for your debts can likewise pose some risks to your financial management system. If you focus in saving more you will likely to be spending more for long term interests of your debts. In the long run your debt interest will likely be higher than your investment interest. While you may be thinking that you have set aside an amount for savings, there is still the possibility that you will be using the same to pay off your mounting debts eventually.

However, the best benefit of being able to save is that you have an emergency fund that you can turn to in case of dire financial needs. Even the smallest savings that you can make will help you avoid incurring more credit card debts to pay for small expenses that you would have charged to your credit card if you have no savings to turn to.

Making practical financial decisions

Within the standpoint of sound financial management, it depends upon the circumstances which between saving and paying down debts that should be your priority. While both are equally important in your financial management decisions it requires a better understanding what circumstances will be best beneficial to your personal finance. If your investment will yield a much higher interest rate than your debt interest then you are better off in giving more weight to savings. However, you should be able to pay off your debts at the same time while saving in order to gradually unburden your net worth.

Victoria Anderson is a finance writer for Guarantor Loans Direct. She contributes news towards personal finance, debt management, taxes, investing, planning and business things.

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Category: Debt

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