Hi Kevin,
I’m trying to figure out if I should save up money or pay off my debt. Here’s a little background on my situation: I make about $45,000 year, have a $7,500 student loan at 3.9%, rent an apartment for $900/month, and have 1 chase credit card for $10,000 @ 12% interest rate. I’ve been told that I need about 6 months of living costs in case I lose my job or something. I’m 27 years old, and wanted to open a roth IRA accounts to save up for retirement. I can set aside about $600/month to either pay off my debt or start saving fore my retirement account, what do you think I should do? -Mathew
Hi Mathew,
It’s awesome to hear that you’re thinking about opening a retirement account and looking into securing 6 months of living costs. Making $45,000 a year and paying $900/month on rent is definitely a great sign that you’re keeping a close eye on your budget!
I always recommend everyone to save around $1000 in a savings account before they begin to pay down their credit cards. This allows you to have access to funds immediately in case of an emergency and you’ll avoid having to get a payday loan or get into the habit of using your credit card for emergency purposes.
If I were you, I would take a second look at your budget and see if you can cut any expenses. The most obvious expense that you can cut is your cable or wireless bill. After you aside around $1000 towards your savings, you can then begin focusing on paying down your credit cards.
I agree 1) $1,000 emergency fund 2) pay off debt 3) save for retirement
but always always ALWAYS contribute to your company’s 401K up to the full match FIRST. that’s free money!
I agree with you it is better to maintain a minimum balance in your savings account for emergency before you start paying off your debt.
Cutting unnecessary expense should be the second important step to be taken.
I read the situation mentioned above. I Think he should first pay off his debt but it doesn’t mean he should not save. Like you have discussed above he should save some amount as emergency fund in his savings account for the rainy days & then start paying off his debt.
As i like to think that saving the money for retirement instead of paying off your debt is not at all a good option.