Striking a Balance: Managing Debt Repayment and Savings

Americans face a common financial struggle when it comes to deciding how much money to allocate towards savings versus paying down debt. Finding the right balance between the two is crucial for financial stability. According to Bankrate’s Credit Card Debt Survey, more than 2 in 5 U.S. adults with credit card debt cite emergency or unexpected expenses as the reason for carrying this debt.

When it comes to prioritizing savings, scenarios where saving money takes precedence include having debt with a very low interest rate, access to an employer 401(k) match program, and lacking emergency savings. Experts recommend building an emergency fund of three to six months’ worth of expenses to prepare for unexpected financial challenges.

On the other hand, paying down high-interest debt first can help individuals manage their finances better and reduce the amount of interest paid over time. Debt repayment strategies include focusing on debts with high interest rates, addressing debts causing significant stress, and using debt management calculators to determine repayment amounts.

Ultimately, finding a balance between saving money and paying off debt is key. Greg McBride, CFA, Bankrate’s chief financial analyst, emphasizes the importance of automating savings and maximizing debt repayment efforts simultaneously. By creating a budget, setting financial goals, and regularly reassessing and adjusting plans as needed, individuals can effectively manage their finances and prepare for potential financial challenges.