Some people think that they should choose between saving and paying off debt. Well here’s the thing – you need to do them both. No matter how small your extra money is, these two are equally important and choosing to not act on one of them could lead to financial disaster.
In all honesty, your question should not revolve around what needs to be prioritized. The more important question is, how can you save while paying off your debts? This is where debt consolidation comes into play.
Let us look at the facts here.
If you choose to save and ignore your debts, you will suffer from the high interest rates, penalty charges and even the possibility of a lawsuit. This is mostly true if you have a lot of credit card debt – which is the third biggest debt amount that consumers owe in this country. It will keep on piling up the longer you refuse to send payments to your creditors. By defaulting on your payments, you will be endangering your personal possessions from being taken away from you. For instance, secure loans like mortgage and car loans gives your lender the right to take your vehicle or foreclose your home. Ignoring your debts, not paying them off and pretending they will just go away is the worst thing that you can do.
On the other hand, if you choose to just send everything to your creditors and lenders without leaving anything for savings, you are also in trouble. Let’s say your disposable income can cover your debt payments without a problem. What if, something happens to your job to compromise your main source of income? What happens to your debt payments now? Also, how will your family survive? Or another scenario is a health condition. What if you found out that you need an expensive medical treatment? Will you put yourself further in debt just so you have the money to pay for medicines and medical care?
Both are equally important but another case in point is, what if your limited income cannot cover both your savings and your debt payments? That is how debt consolidation becomes a perfect option.
This type of debt relief option works to provide debt ridden consumers with a low monthly payment plan. You are not really reducing your debts so you don’t have to worry about the creditor not agreeing to the new payment scheme. You are merely distributing your current balance over a longer payment plan. In some cases, you end up paying more interest amount but given your limited resources, you really have no choice. If you are lucky to be granted a low interest rate on your new payments, then it will bring your monthly requirement even lower.
This lower monthly contribution will allow you to make room for your savings. The thing is, you don’t have to spend forever splitting your disposable income towards the two. As soon as you have grown your savings into an amount that can be an adequate safety net for you and your family, you can use all your extra money on your debt payments. That way, you make more significant contributions towards your debt to expedite your debt freedom. This time, if anything happens to your income or an emergency expense crops up, you don’t have to worry about defaulting on your debt anymore.