Do You Have Debt – Then Don’t Save

Humans are funny creatures We don’t always do what’s best for
us – instead, we do what feels best at the time, and try to
blank out any reasons why it might not be the best thing to do
It’s called self-justification Or just plain illogical to many
Maybe that’s why there are so many people who have both savings
and debts
A Matter of Psychology
Yes, it feels better to save Saving feels like building a
foundation for your future, while paying off debt feels like
throwing your money down the drain That money is for the kids’
education, or for improving your house, or whatever else – and
it’s in an account earning a good rate of interest What could
be wrong with that? Absolutely lots, if you have debts
Don’t Be Fooled – Here is a Real Life Factual Example
There are almost no savings accounts that offer interest rates
as high as the ones credit cards charge Here’s a question: if
you have $10,000 in a savings account earning 5% per year and
$5,000 on a credit card at an interest rate of 20% per year, how
much money do you have? After just five years, the answer is
effectively $0 – your debt would have grown to around $12,500,
the same amount that your savings are now worth
You might not believe it now, but it really is much better to
pay off your debt If you used half your savings to pay off that
debt, you’d be in such a better position that it’s really
amazing You avoid five years of compound interest on the debt,
but you still get to keep $5,000 in your savings account,
earning interest – after five years, that’s about $6,380
If you’d still rather keep your savings intact instead of using
them to pay off your debts, ask yourself this simple question:
is your pride worth $6,380 of your family’s money?
Think of Your Financial Health
When you have enough money to pay off your debt, there’s
absolutely no reason to keep it Debt is for people who don’t
have the money, and need to borrow it Debt costs money, and
savings make money – you want as much of your finances as
possible to be savings, not debts If your savings account and
credit card are with the same bank, then you’re effectively
paying for the privilege of borrowing your own money from them
Why would you do that?
There are other benefits to paying off your debt with savings
You’ll be less stressed about your debts, and your credit report
will show that you were able to pay everything back – getting
you a much better interest rate if you ever need to go into debt
again
I know it can be hard You just have to remember that any money
you’ve ’saved’ hasn’t really been saved at all It’s money you
should have been spending instead of making purchases with a
credit card Yes, it feels much worse to spend money thinking
that you’re spending away your future – but always remember that
when you use a credit card to spend that same money, you’re
spending away your future, plus interest Anyway, if you’ve got
the debt, then those savings have already been spent – stop
denying it to yourself

Tags | card, cards, compound, costs, creatures, debts, education, Finance, financial, health, paying, psychology, rate, rates, savings