A survey commissioned by Edward Jones revealed that Canadians are likely to choose debt repayment over saving for the future. When receiving lump sum payments, the survey showed that one-in-three were likely to use the money to pay debt, while one-in-ten will save the money to build a nest egg.
Paying debt first may seem like the prudent choice, but it is not the case all the time. In some situations, it is actually better to save rather than pay for debt.
These are some scenarios where you can compare the benefits of saving for the future versus paying debt:
Graduated with student debt within the last six months
Saving is a better idea in this scenario even if interest accumulates during this timeframe. You can forego making payments on your loan for the first six months after graduating. Saving money is ideal while you look for work; you might have to purchase a car or find a new place to live once hired.
You Have the Benefit of a Low, Fixed Rate Mortgage
If your mortgage is reasonable and you can take the rates, pay the minimum only and use the rest of the money to balance your portfolio. If your mortgage is high, around the half-million dollar mark, it is better to accelerate the payments without sacrificing your ability to invest.
You Want to Pay Off Mortgage in 10 Years
If your finance strategy is to pay off debt and make saving more serious later in life, it is ideal to max out the mortgage pre-payment annually. This strategy may be extremely conservative, but at least you are on your way to owning your own place within a decade. This gives you financial flexibility later in life.
You Finished School More than Six Months Ago But Didn’t Quality for Loan Forgiveness
This scenario puts you in a tight situation as interest will rise and will give you little flexibility with your finances once you hit the job market. Pay off debt by working multiple jobs to pay off the debt slowly, as this will likely grow over time.
Workable Line of Credit
Leave credit to emergencies and pay them off as soon as you can to avoid temptation to run up debt. Small things add up in the end, keep yourself debt-free as possible.
No comments:
Post a Comment