Spread Too Thin

Can you save and pay down debt at the same time? Maybe, but should you? In my opinion: no.

If you carry consumer debt, then my advice is get it gone as soon as possible. And in the world of high interest consumer debt, every dollar counts. The faster you obliterate the debt, the faster you can get down to the serious business of saving and investing those savings.

What if you already have savings....should you use those to pay down the consumer debt? At the risk of sounding like I'm contradicting myself, again I'm going to say no. And then I'm going to sound like I'm waffling when I say, unless the only debt you carry is all at 20% or more. And even then, before cashing in your savings to reduce debt, do everything in your power to get the interest rate on the debt reduced first.

Three reasons for this logic:

  • The interest you could be making investing those savings is probably more or equal to the interest on the debt if the debt is at 10% or less.
  • Seeing your savings wiped out in one swoop would be a hard blow to take.
  • Chances are, if you're still adjusting to your new-found budgeting ways, you may not be 100% successful in keeping the debt gone once you pay it down, and then you would have effectively emptied the coffers for nothing.

Believe me, it took us 3 cycles of racking up and paying down our credit cards before we finally were able to get it right and make enough lifestyle adjustments to keep the debt away for good! Using my savings wouldn't have made a difference to our spending patterns, and it would have been very depressing to start at zero again in accumulating those savings.

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