Do I build my savings account first? Pay off my cash advances and credit card debt first? Or do I do both simultaneously? I only have so much leftover available income to do anything extra, what are my options? Depending on who you talk to, you will get different answers. Listen to all who have something to share, and then make the right decision based on your financial situation.
I have talked to many people, read many articles and have even listened to some financial advisers. Solving personal debt is not a one size fits all. There are too many uncontrolled variables; it makes for an incomparable science experiment. In order to make concrete findings, one would have to have several families of the same size with the same income, having the same debt and comparable cost of living expenses.
Pay off your credit card and cash advances first.
This is one option. The monthly interest payments only take away from your income. To many folks, it makes the most sense. There are strategies to pay off large bills first, high interest bills or even smaller ones first for a faster sense of gratification. Most advisers will tell you that whichever process you choose to pick one card at a time and payoff it off then start on another. When you concentrate on one at a time, you will be able to make a larger dent on that debt. Once one is paid off, the money spent towards this account gets attached to the next on the list.
When you build a savings account first, you will only be making minimum payments towards your debt. This relates to paying interest without taking anything off the principle. Each month, extra income is put in the savings account. Most advisers will want a person to build at least 6 months of budgeted costs into their savings to protect them from medical of job loss emergencies.
How do you do both? Not very well unless you have a decent amount of unspoken income each month. To do both properly, you may want to consider finding additional income or cutting back on any extras you can find in your budget. Split the wealth up so you can build that savings and make a dent on the deb.
I like to think that a good way to properly save yourself from falling back into debt is to quickly build up a savings reserve. Build up one month’s income as fast as you can, then set your sights on your cash advances and credit card debt. Having this reserve will give you access to cash in order to take care of unexpected costs during the moths without having to build more debt. Let’s face it, if you are working at paying off one credit card but using another defeats the whole purpose. Pay back the savings as soon as you can then return to lowering your debt.
The longer you can keep yourself from accruing new debt, the better your finances will be after paying off debt. Whichever program works for you, you have to dedicate yourself to stick to it no matter how many material sacrifices you may have to give up. Your future finances will be appreciative of all your efforts.
