Should you go for debt payoff or beef up your savings? While the two options are good, experts would generally say that you should go for debt payoff first, and here are some tips to start you off.
Yes, it is wise to save money for emergencies, but ideally, once you have your emergency fund (three months’ worth of living allowance), it is time to start repaying. Debt repayment interests are more significant than savings account interest rates. Savings account interest rates are pegged at 1-2% annually, while personal loan rates are in the double digits. In the long run, you will lose more money when you keep delaying debt repayment.
Come up with the best debt repayment plan that is doable for you. We need to realize that everybody should be preparing for a possible recession. If it doesn’t happen, well and good, but if it does, then at least it will cushion the impact. So what does a reasonable debt repayment plan look like? After the BASIC living expenses, the more significant chunk goes to debt repayment and a small portion towards your savings.
Spend less and earn more. Now that you are in the process of desiring to pay off debt first, if you can’t add more money, then definitely spend less than what you are accustomed to. Just stick with the basics, and you will be fine.
It will take years to become debt-free if you are heavily in debt. That is why you need to stop adding more to your debts and steer clear of the temptation of “rewarding” yourself with something new for a job well done just because you were able to repay one debt. Limit your reward to a cup of coffee or tea. Delayed gratification is critical, and what can be more satisfying than being debt-free?
The most important thing to do is to start your debt pay-off journey now.
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