Finding some extra money laying around after paying the bills is always a great feeling, but what should you do with it?
Although saving is essential for future purchases, paying down debt can also help increase your financial stability. Choosing between the two should be based on three different, yet important questions:
Do you have emergency savings?
Life is full of surprises, and many unforeseen circumstances can be expensive so maintaining an emergency savings account is very important. Having a cushion for unexpected bills or necessary payments can be the difference between struggling and feeling at ease on a daily basis.
How much debt are you really in?
It’s important to know how much debt you are actually in. Having any sort of debt can have a negative impact on your credit as well as your future financial situation but avoiding it altogether can be almost impossible. If you're keeping up with regular payments, you may be able to stash the extra cash in your savings account. However, if the debt is mounting or the interest seems to be growing each minute, the extra money will be better spent on eliminating your debt.
What are your overall financial goals?
With a set financial plan in mind, money can be saved, and debts can be paid off in a timely manner. Creating a budget can help you keep track of your spending so that you have a clear picture of your financial goals.