One thing I am always scared of is how to pay off my debt. My mind is always there every second until I am done settling all, then I would be relieved.
Let me put the above question this way — “Should you clear all your savings to pay off your debt?”
I saw this question in an article somewhere and I was willing to bring in my opinion here even though I left a comment based on which one I would go for first or do both.
Many people are so addicted to borrowing and end up in debt. While some are wise to use it in starting up a business, others do not have a valid reason why they are taking a loan. I have someone who takes loans from apps just to buy clothes and expensive items, believing that her boyfriend would pay her back at the end of the month which she would use to settle her debt. For that purpose, I don't think the lady is sensible in deciding on that. Her sole aim is to oppress and nothing more. For such a lady, what if her boyfriend broke up with her after knowing what she uses the money for, what will happen next?
This is why we have many articles, especially on Hive that talk about saving for emergencies so you don't have to go into debt since you have something on ground to help you whenever you need it.
Paying off your debt is important, but you have to build your financial resilience and make plans for the future. Many people are so hooked up to debt that paying it off can feel like it has to be their financial priority but you should do some saving while you are paying down debt.
Saving especially for an emergency has the capacity of keeping you from going deeper into debt when expenses you never expected pops up.
I asked a friend this question and here is what she said; “you can still earn a little interest in savings than when you pay back your debt. So, I will suggest paying off debt first before starting to save.”
Inasmuch as she has a point there, I still won't agree to paying off debt first, then coming back to save. What if you keep paying off debt and still getting to pay over and over again when you keep borrowing or getting a loan except your business is the one that yields good returns where you can easily pay with your profit? Aside from that, it is still not fair enough to pay your debt first. There is a way around this and that is what my answer would be and something I can do.
According to the book “The Richest Man in Babylon” by George Clason, he said it is ideal to save 10% of your income. I love how he put the word which sounds lovely to me and has been something I have held onto and always remember. It goes thus — “10% of what I earn is mine to keep.”
What? Isn't that too much to put into savings considering the huge debt on my neck? Perhaps someone with the curious question this morning.
Well, you don't have to start saving big. Start small and then pay your debt bit by bit until you are done clearing all. With this method, you are using a stone to kill two birds at a time.
Everything I am saying here boils down to cutting down on your expenses, especially those unnecessary expenses on your list. Once your income arrives, remove within the range of 5-10% for savings, and budget the important expenses that could take you till you get your next income. Use the remaining one to pay your debt bit by bit. Continue doing this till you are sure of freeing yourself from the debt which could bring comfort to you knowing you already are saving.
The general rule of thumb here is to do both. Pay off debt while building your emergency fund through saving.
