The more debt you owe, the less you have available for savings – it’s simple mathematics. Of course, this doesn’t apply to every single person with loans. Some people earn enough for savings and loans. But what if your situation is different and it’s either one or the other? Should you sacrifice savings to repay your loans?
Benefits of Having a Savings Account
Regardless of how much you owe creditors, there are undeniable benefits to having a cash reserve. Anything can happen from an injury to a major car repair. If you don’t have enough cash tucked away, you might rely on your credit card or take a risky payday loan. A savings account provides peace of mind. Even if you don’t have a huge bankroll, having a little something in savings provides a cushion and lifts a weight off your shoulders. Just knowing that you have a backup plan in case of an emergency can help you sleep soundly.
Understandably, incorporating saving with loan repayment is much easier to say. At the end of the day, it all balls down to what you bring in. And if what you’re currently paying lenders doesn’t allow for savings, you may have to take a few drastic measures.
Pay Yourself First – No Matter What
Don’t view savings as an option. Treat your savings account like any unexpected expense that you have to pay. Think back to the number of times you encountered an expense that wasn’t in your budget. What did you do? Like most people, you probably hustled and found a way to meet this expense. Maybe you reduced your recreation or entertainment budget, worked a little overtime or made other sacrifices. This situation with your savings is no different. If you presently don’t have enough for savings and loans, think of ways to free up cash. Some experts recommend saving 10% of your income each month. This is a good goal, but if you need to save less, no worries.
Adjust How Much You Owe
To prevent debtors from defaulting on loan repayment, some lenders have provisions that lower loan payments. Although your mortgage lender or auto lender isn’t likely to reduce how much you owe on a whim, you can possibly reduce what you pay monthly to private finance companies and federal student loan lenders. There are different requirements for taking advantage of this provision, and some lenders only adjust payments if debtors experience severe economic hardship. Although lenders don’t have to lower your monthly payments, it’s worth asking.
Open a High-Yield Savings Account
As long as you’re paying on your loans, your savings account may grow at a slow pace. If you have barely enough disposable income for savings and loans, maximize your savings with a different type of account. Check out high-yield savings accounts offered by your bank or an online bank. Deposit your cash in this account and earn a higher return. These accounts have higher interest rates than a regular savings, helping you get the most out of your savings.