Save yourself out of debt!

April 6, 2010

Over the past few weeks, the question of whether to use savings to pay off debt, or save first when an “injection” of money comes in, has come up on numerous occasions and under a variety of circumstances. I have been asked it directly by clients, by people inquiring about the services I offer, it’s been asked of a panel in the Sunday newspapers and it arose in our Counselors Club.

One of my colleagues and mentors, Mikelann Valterra, (http://www.womenearning.com) answered the  question  “Should I use savings to pay off debt” this way “Only if you never have another periodic expense” By periodic expense we mean for example: annual insurances, car registration, vacations, annual dentist visits, eye check-ups and new glasses etc. Things which we can plan for, but often don’t, and then when they come up and we don’t have money put aside, we use a credit card!

Mikelann also said that too often we are over-focused on debt and under-focused on savings.

It is better to pay off your debt slowly and never go into debt again, than to pay it all off, leaving nothing in savings and then having to use credit cards for “emergencies” because we have no savings!

This creates far better financial habits.

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