Paying down debt vs. saving money
Beverly Anderson, the President of Global Consumer Solutions at Equifax, gives advice paying down debt versus building a savings account.
The Covid-19 pandemic has left many American’s both worried and curious when the economy will get back on track, and additionally questioning future job security. An emergency fund — money set aside to cover unplanned expenses — can provide support in case your car battery dies, your water heater needs replacing, or you lose your job.
How much should you save?
If you can, try to save six months’ worth of expenses in an emergency fund. This may seem daunting and unrealistic if you’re struggling financially, so start with small victories by saving one month’s worth of expenses, then another and another until you’ve reached your goal.
What is the best way to save?
If you arrange with your employer to divert even a small amount of cash from each paycheck into a separate account, it won’t take very long to see the savings add up. Furthermore, if you ensure that savings is not easily accessible, you will find that you won’t even think about the funds that are sitting in the account, steadily growing for you.
But what about paying down my debt?
If you are already confident in your emergency savings plan, now may be a great time to pay down your student loan debt earlier. Currently, interest payments on many of those obligations are paused, allowing you a unique opportunity to pay down the principal balance on the loan faster than what might otherwise be possible. That means you will also avoid paying interest on that principal, which will reduce your costs over the life of the loan.
Regardless of which action you choose to take, both building your savings and paying down debt are great steps to take.