Put Your Savings Toward Debt First
What if I told you there's a way to increase your income by adding another payment each month? You'd probably think I was out of my gourd, right?
Fortunately for you, I'm not. See, there's a twist - the extra payment is to yourself. That's right, I'm talking about saving.
On Tuesday, we talked about how easy it is to start achieving your savings goals once you get over the hurdle of all those excuses that have been holding you back. Today, we're going to look at how to make the most of those newfound dollars -- especially when you're in debt.
In most cases, you'll want to put your money where you'll get the most benefit -- i.e., the highest interest. There is one exception to the rule, however. If debt is eating a hole in your wallet, you'll make the most of your savings by allocating that extra cash to paying off your obligations. After all, what's the point of worrying about the interest rate on your 401k or money market account when you're paying even higher interest - sometimes upwards of 30% - on your debt? Remember, the sooner you pay down debt, the more money you'll get to keep with each future paycheck.
Let's say you get into the swing of saving, and you get that debt burden taken care of. Ah, financial freedom at last! Now what? How about making sure that you don't get sucked into the debt trap again in the future? It's possible with an emergency savings plan.
If you've already got savings you can tap into, you can skip this step and start thinking about investment plans. If not, though, it might be time to consider building up a cash cushion: several months worth of living expenses that can cover you if you lose your job or home, have to pay for major car repairs, fall ill or get injured or face any other unexpected circumstance. This way, your family will still be able to make ends meet without whipping out the credit card - and creating a giant debt burden that could prevent you from ever making it back on your feet.
Make sure to stash your emergency cash a fund that lets you access your money quickly with little to no penalty for withdrawal, like a money market account or, if you don't have enough yet to open a money market, in a regular old savings account. Don't have the willpower to sock away money from each paycheck? Consider setting up automatic payments.
If you still can't seem to find the time or money to start saving, you might be carrying too much debt. Bankruptcy can help you can trade debt for financial freedom. Find a bankruptcy plan that's right for you with a free one-on-one debt analysis courtesy of a Chicago bankruptcy lawyer. Or sign up for our next free community workshop. Isn't it time you found financial freedom?