Introduction
It’s difficult to choose between saving an emergency fund and paying off debt. If you’re struggling to decide where to direct funds in your budget or an unexpected grant, you’re not alone. Household debt, aside from housing costs, reached its highest level in 16 years in 2020, but at the same time, the household saving rate increased to levels not seen since 1975.
Debt Payments vs. Building an Emergency Fund
The general rule is to do both: pay off debt while building an emergency fund. “Saving at the expense of accelerating debt repayment overlooks the importance of committing to do both now,” said Todd Christensen, Education Director at the nonprofit Debt Management Credit Counseling. “It shouldn’t be a choice of either/or.”
A Grain of Salt
Rules of thumb are general guidelines that may not work for everyone. You may need to take these rules with a grain of salt depending on your personal circumstances. For example, if you’re behind on credit cards, mortgages, or auto loans, tune in to these debts before creating an emergency fund. Some people may deposit a small amount into their emergency fund, even if it’s just one or two dollars each month.
Frequently Asked Questions
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[Sources: Cash, Bankers]
Source: https://www.thebalancemoney.com/should-you-save-money-or-pay-off-debt-960844
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