Focusing energy on debt reduction (or elimination, as I like to term it) or savings is an ongoing debate, not only for society at large, but in my own life. Once I started taking control of my finances, instead of just going with the flow and barely scraping by, I’ve prioritized different things at different times, and it all comes back to which is more important to me at that point – eliminating debt or putting money into savings?
This seems like it should be a clear cut process with a easily defined answer, but it is not. Every situation is different, and the factors that come into that situation will vary. Instead of looking at a cookie cutter one-size-fits-all solution, here are reasons I’ve prioritized debt elimination over savings. Later I’ll look at the other side of the coin – when savings is prioritized over debt elimination, and then finally, what decisions I’m currently making as well as the future of our financial life.
Debt elimination reduces obligations
The most dramatic and immediate affect of reducing (and eventually eliminating) your debt is reducing the amount of financial obligations you have. The less you owe, the more of your money is actually yours and not promised to someone else. The more decisions you actually get to make about your money that aren’t made for you.
Debt elimination has a snowball effect
As you reduce and subsequently eliminate debt, there is more money freed up in your budget that can be applied to remaining debt, producing a snowballing effect. The more money put towards debt, the less that debt becomes, and if you keep building upon that, the path to debt freedom gets shorter and shorter.
Debt elimination makes an immediate difference
$100, $10, or even $1 paid towards debt is that much more you do no owe, that much more you are no longer paying interest on, and in some loan cases, can immediately reduce the amount you are obligated to pay in a month. This is a difference that can be immediately felt in your monthly budget, and paired with the snowball effect can have drastic positive consequences.
Debt elimination frees funds for emergencies
Money that is not obligated to pay towards existing debt can be, if needed, used towards other events, emergencies, or obligations. If you now have to pay out $800 a month vs $1000 a month, that $200 can be, if need arises, diverted to a pressing immediate need.
Of course, many of these reasons can be turned on their head and used to defend a position of savings over debt elimination. Which is why the path to take is a uniquely personal one. And Next time I will be doing exactly that – turning things upside down and seeing where that gets us. I’ve been on both sides of this debate, and mostly somewhere in the middle. Finding that middle ground that is the right balance for you is the trick.