Should Washington residents pay off debt or save money first?

Washington consumers unable to decide if it is better to pay off debts or focus on their savings should gain some professional insight.

People who are in debt and have a significant lack of savings might wonder whether it is better for them to pay off their debts first or put their focus on building up their savings. This question is especially vital for those in Washington with significant financial trouble that threatens their future. A proper strategy and a degree of understanding are just the things needed to make the right decision.

Look at the big picture

To learn whether it makes more sense to focus on paying off debts first rather than saving up money or vice versa, it is best to look at debts and savings as two wholes. All sources of income should be noted, and all interest on debts should be written down and added up as well. If the total interest rate for debts owed is especially high, it is best to concentrate on paying off debt first. This is mainly because the interest owed on debts is usually higher than any interest gained through money in savings.

Have a small emergency fund

Those who do not have a financial safety net whatsoever should take out some time to build one. While they will continue to pay money in interest on their debts, they can at least rest easy knowing they have a bit of an umbrella should their car breakdown or any other type of disaster unexpectedly strike. Generally, it is best to have at least $1,000 socked away for a rainy day. Paying the minimums on debts is acceptable until this amount can be saved.

Focus on paying off the "right" debts

There is consumer debt, such as credit cards, and traditional loans like mortgages. When deciding which to focus on, not only is it better to tackle smaller debts first, it is also a good idea to pay off credit cards first rather than mortgages. The reason for this is credit cards can be used again after they are paid off, which cannot be said of mortgages. While a person can refinance a debt, there are closing costs and other fees to consider.

Concentrate on interest

Interest can seriously reduce a person's finances to shreds and leave them scrambling for alternative payment options. For that reason, it could be a good idea to consider a balance transfer, which is when a high-interest debt is moved onto a card with a lower interest rate. Either all or a portion of the high-interest debt can be moved, whichever is easier.

The above tips are great for finding the balance between building savings and paying down debt, but they are not the perfect solution for everyone in Washington. Consider meeting with an attorney to explore more options and solutions.