Save or Pay down debt?

[disneysteve]

Originally Posted by Aleta

Steve: I have to agree with Prosper about the snowball effect. If you are barely making it financially and you're deep in debt; getting rid of a debt quickly is a big boost to you mentally.

Originally Posted by noppenbd

For me the DR method worked really well. There is a huge psychological benefit each time a loan is completely paid off.

Again, I agree. That wasn't my point. The DR method does work and may be the better choice for some people. And, as anonymous_saver said, following the DR plan is better than no plan at all.

[vsjhoc]

Originally Posted by maat55

In general, student loans are usually your last debt to pay because of size.


I agree with you in many cases, but the smallest to largest snowball can be very effective as an motivator. It is designed for those who are radical about paying off debt quickly, limilting the amount of interest paid anyway.

If you want to limit the total amount of interest paid, you pay the debts with the highest interest rates first. That's a mathematical certainty.

Student loans are usually a lower priority because the interest rate is lower than the APR on credit cards, auto loans, etc. If you are a DR devotee and want to pay off the smaller debts first for psychological reasons, that's a personal choice.

[Pitman]

Originally Posted by sweeps

Save and pay down debt. Why is that never an option?

Thats the option I've been choosing for the past few months, and its working perfect for my situation.



But if I had to choose either save or pay down debt, I'll say pay off my debt first then save. DR's plan definitely works, but I'd rather pay off the highest interest debt first, instead of the lowest.

[maat55]

Originally Posted by vsjhoc

If you want to limit the total amount of interest paid, you pay the debts with the highest interest rates first. That's a mathematical certainty.

Student loans are usually a lower priority because the interest rate is lower than the APR on credit cards, auto loans, etc. If you are a DR devotee and want to pay off the smaller debts first for psychological reasons, that's a personal choice.

This is an old story. People can choose for themselves. Which ever motivates is fine with me. DR's plan is dsigned to motivate and it works.

[Aleta]

The budget that we had to set up was savings even if it was only $5. a week or $5. a month. The idea was to get into the habit of automatically putting away something every week. We also were told to set aside a small amount of money for entertainment. We were also setting up accounts that we had never had before that would have surely kept us from using a credit card unwisely. I think that the habits you set up are very important

[jIM_Ohio]

Originally Posted by Aleta

The budget that we had to set up was savings even if it was only $5. a week or $5. a month. The idea was to get into the habit of automatically putting away something every week. We also were told to set aside a small amount of money for entertainment. We were also setting up accounts that we had never had before that would have surely kept us from using a credit card unwisely. I think that the habits you set up are very important

The above comment is sage advice. If a person can make money matters a HABIT as opposed to a "decision", then the habit is harder to break.

I make emotional financial decisions frequently, and you might not recognize me based on those decisions.

The financial habits I have put myself into (401k. Roth IRA, banking extra income) are tough to break because they are engrained into my behavior as habits, and breaking those habits will be a tough thing to do.

[tbc32]

Originally Posted by sweeps

Save and pay down debt. Why is that never an option?

I agree... paying off the loan makes the most financial sense, but saving at the same time will give you confidence and help you sleep at night.

[jIM_Ohio]

Originally Posted by sweeps

Save and pay down debt. Why is that never an option?

I think once a steady state budget is reached (meaning high interest debts paid off) this broad advice (save and pay down) serves 75% of the public quite well. Keeps liquidity while lowering expense overhead.