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Should You Pay Off Debt or Not?

By Marilyn Katz

Republish: EasyPublish™
Published: 30Sep2009
Word count: 523
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Keep Cash or Pay Off Creditors?

Most people would love to live without any debt. We dream about the day we can burn or mortgages, drive a loan free car, and not owe a cent to credit card companies. Since that seems to be a distant goal, some of us dream about winning the lottery, or chucking everything to live in a shack in the mountains.

Have you ever thought about end of the world movies and stories? I think that people like them because they can picture a life without debt, even if something really awful has to happen.

Is your debt really hurting you? While most of us would like to pay down high interest credit cards, we also need to build up a savings account. There is no right answer for everybody, but only an answer that works for you.

Juggling Debt

Instead of paying it off today, is there a way to pay less interest for it? You may be able to find a lower interest rate on your loans. Credit cards could be moved to a friendlier company, and homes or cars could be refinanced. You may be shocked at how much lower your bills will be if you can reduce your interest rates.

Look at high interest rate credit cards. It is not unusual to see 25% interest rates these days. If many Americans carry $8,000 in debt, that means they have to pay $2,000 just to service it. If you could reduce that interest rate to 12.5%, you could save $1,000 every year without working any extra hours.

Make Sure You Save Too

In your efforts to pay down your credit cards and loans, try not to neglect your savings or investment accounts. Emergencies happen, and you do not want to have to depend upon even more credit. If you do need to deal with a health emergency or make a sudden trip, you want to be able to have some cash.

Try to Stay The Course

You need to have a goal, and a way to reach that goal. Consider putting an extra fifty dollars toward paying off loans, and then allocating an extra fifty dollars toward your emergency fund. Even a modest amount is better than nothing.

If you set goals you will never meet, you will never do yourself any good either. A thousand dollars toward debt, that never actually gets paid, will do you no good.

Balance The Interest Rates on Investments, Savings, and Credit

Do you have a fairly good home loan with a lower interest rate? Do you also have a way to save your money that pays high returns? Then you do have to consider that you may be able to deduct the home loan interest, but have to pay taxes on your savings. In this case, you will probably do well to leave things alone.

You also have to consider the impact of state and federal income taxes. If mortgage interest gives us a deduction, it might work in our favor. So even though we have to pay interest on the money, the actual rate is lower when we consider the tax deduction.

Consumers want to know if they should payoff debt. Also take advantage of our free online financial calculators.

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