I am a student and receive monthly disability compensation. I have about $40,000 worth of debt…credit card, car loan, student loan… I recently started a payment plan through a debt consolidation company and am working on getting out of debt. I do not work and have a fixed income.
Should I still be putting money aside in savings or should I be focusing only on getting out of debt before I start saving and investing? I have heard so many different things. Some say to pay off debt first because my interest on my debt is more than I will earn from savings. Some say to start saving as soon as possible. Should I at least be putting a little bit aside for savings? If so, how do I determine how much to save and what type of account to save it in?
This is a time that you need to stop listening to the mathematical answer and start listening to commonsense. The mathematical answer is that you will get a better return on your money if you use available debt reduction dollars to reduce the amount you owe. Numerically, it makes sense, I understand that. But…
Life is not logical not linear. It gives us wild twists and turns. It is not predictable. If it was then you could just use the mathematical model and feel confident that you’d have your debt paid off before anything unexpected happened.
I think the commonsense and most prudent method is for you to save at the same time you are reducing your debt. If you are saving each month and something unexpected did come up, which it will, you’d have the cash to pay for it rather than having to lump it back on plastic and erode any progress you had already made in reducing your debt.
I really like this savings account. Use this savings account link. It pays a high rate of interest, there are no minimum investments and you can deposit your money automatically or at will, electronically. This savings account is paying about 27x more interest right now than a standard bank savings account. And no worries, it is FDIC insured.
I would start out with putting $50 a month in and increase it as much as you can per month as you go. The key to know if you are putting too much in is if you have to take money out for routine expenses. You don’t get bonus points for putting money in and then having to take it out to get through the month.
I am a huge fan of savings accounts and think that saving is prudent in all types of economies and times.
Here is a big hug from me with extra interest!