• Aim for creating a small emergency account and put a larger bulk of your cash into paying off your debt. Why?
• Paying off debt builds confidence which better prepares you to handle your finances. It feels good to save as well, but it feels much less stressful to have less debt.
• Paying off debt is building a better savings. While an emergency fund will grow if invested or even if placed in a decent saving account, it won’t grow at the same high rates that debt does. The sooner you pay off debt and cut out those hefty interest charges, the sooner you can save up a much better emergency fund.
• Money expert Dave Ramsey notes that paying off debt in full builds a momentum that “snowballs” into more and more results. Basically, once you get the satisfaction of having a debt paid off you’ll like the feeling and it’s easier to push onward, paying off more and more. People do like instant gratification and are more likely to follow through when they get it.

Since you do need some money for a rainy day, save up about $1000 vs. the many thousands you should have in an emergency fund. That $1000 will tide you over until you finish paying off your debt, then you can add more cash to your savings account.

What do you think – rainy day or debt first? AND why…

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Post from: Thrifty Mommy