What Comes First? Saving or Paying Off Debt?

This is probably one of the most popular personal finance dilemmas. Indeed there seems to be no straight answer when it comes to the decision of paying of your debts first or setting some money aside for savings. Naturally, there are two sides to the argument and in order for you to decide what you should be doing, it’s best to see what each side has to offer.

Weighing the Options

Pitting savings over debt repayment can sometimes be a matter of opportunity cost. If you don’t pay off that debt just yet, what can you do with the money that can override the interest you’re gaining for every month you fail to pay?

Credit card
interest rates are among the highest rates when it comes to personal loans. The average credit card interest rate is around 16.8%. Having that figure, think about what kind of investment vehicle your money is already in, and if it beats that 16.8% rate. If your money is just stuck in a savings account that offers a mere 1% interest, then you’re obviously losing money by failing to pay off your debt.

On the other hand, if your current debt is a home refinance mortgage at a rate of 3-4%, plus you happen to be financially adept at certain investment vehicles, then you would know that there are areas where you can place your money for it to grow at a higher interest rate. This doesn’t mean defaulting on payments, but rather just paying off your mortgage slowly while keeping the rest of your money invested in higher return vehicles.

Planning for Emergencies

Other opinions say that paying off debt before establishing an adequate emergency fund is just completely pointless. The moment you fall into a financial crisis, you’ll eventually end right back into that debt hole. This is a completely practical notion, and for those who haven’t established even a small amount of savings should probably do so first. The trick is to save about 6 months worth of expenses and to keep it in a liquid account, so that in case anything goes wrong, you’d have enough to cover your expenses without having to borrow money again.

So what should you do first then? Save or pay off debt? Well the answer does somewhat lie in relation to your current situation. Think about what you will be losing, and what you will be gaining, should you choose one option over the other. Ideally, it its possible to do so, doing both at the same time would probably be the best solution. In that way, you’d be hoarding less in interest, while creating an emergency fund for yourself when needed.


Walden Savings Bank Offers 6 Month CD Rate At 0.75%

Looking for a short term place to store your cash? Placing your money into a certificate of deposit will earn you more than most bank savings accounts. By putting your money into a 6 month CD, you not only earn more than the average savings account, but you also don’t have to wait too long before you have access to that cash again. Short term CDs are a great way to earn a quick few bucks while you wait to make that purchase or if you are waiting to use that cash. I recently placed my money into a 6 month CD because I knew I could earn more than leaving it in a savings account, but also wanted the ability to use my money in the next 6 months to buy a house. Right now isn’t a good time to buy a house, so my money was just sitting in my bank account collecting dust, or a few pennies from its extremely low and offensive interest rate.

Walden Savings Bank has been around for over 135 years and has always provided some of the best CD rates to its customers. Walden is currently offering its six month CD rate at 0.75% APY, with a minimum deposit of only $1,000. This CD will automatically renew at the end of its term so its important that you let the bank know your intentions during that time, otherwise you might get stuck in another 6 month term. There are penalties for early withdrawals so be sure you read the fine print.

Walden Savings Bank is headquartered in Montgomery, New York and is a federal chartered mutual savings bank that opened in 1872. Walden Savings Bank maintains 11 full service branches in southeastern New York (Walden, Washingtonville, Montgomery, Cornwall-on-Hudson, Pine Bush, New Windsor, Gardiner, Scotts Corners, Circleville, Middlehope and Florida). You will want to visit one of their branches to learn more about their savings and other options offered.

Be sure to check out our most up to date CD rates table to find the best rates for any CD term.


Why you Should Start Saving for Retirement Now – Even When You’re 20

When you’re in your 20’s, it feels like the world is at your feet. You’re single, you have a regular job (and sometimes even high paying, if you’re smart), and you have a lot of cash to burn. It only seems natural to go ahead and get that car loan, rent a classier apartment, spend your dollars on shopping or vacations, and live a financially carefree life.

You tend to think, “I’m still young, I have loads of time to start saving”. But before you know it, you’re at your 40’s or even 50’s, with a never-ending house loan, and kid’s college to think about. You look at your account and sweat starts pouring down your forehead. With only 10 more years to start saving for retirement, the future is starting to look bleak.

Before you find yourself in this tight situation, it’s time to use that brain of yours and realize the importance of saving for retirement now. Do you know that the best time to start saving is when you’re at your 20’s? And if you only could, you should’ve even started saving when you were 10!

And this isn’t only because of the length of years you have until you turn 60, but this is because of the power of compounded interest. If you haven’t heard of the term before, compounded interest happens when interest is added to the principal, and as time wears on, the interest gained will also earn interest.

To illustrate this concept, let’s say you put $1,000 in the bank with 20% annual interest. By the end of year one, your money would have earned $200, for a total of $1,200. By the end of year two, your money (which is now $1,200), will earn another 20%, earning you a total of $1,440.

If you’ve made the connection, the more number of years you keep your money where it earns a steady percentage of interest, the more money you get!

Let me drive home this point. If you started saving that $1,000 at age 50, by age 60, you would get $6,191.73. But if you started saving that $1,000 at age 40, by age 60 you would have.. (drum roll please).. $38,337.43. Shocking difference? Try calculating if you saved that $1,000 at age 20. You would probably faint.

When people advise you to start saving when you’re young, it’s not for naught. And aside from saving young, you also have to know where to put your money to get the best interest rates. Whatever happens, don’t put off saving for your retirement. Or else there will be nothing left for you but regret.


WTDirect Has a Great High Yield Savings Account

WTDirect has some competitive savings account rates.  They are currently offering 1.21% apy on accounts greater than $10,000.  Here are more details.

  • 1.21% APY
  • Accounts $10,000+
  • No Fees
  • FDIC Insured**
  • Rate consistently in top 5% of U.S. banks
  • Customer service with a direct connection to real people
  • Part of a family of companies recognized globally as leaders in financial services.
  • Click here to apply or see the fine print.

Who is WTDirect?

WTDirect is part of the Wilmington Trust family of Companies which has been around for over 105 years. They are FDIC insured, and constantly boast savings rates in the top 5% of all US banks.

Interest Savings Accounts are a great way to earn money on your savings without the high risk of similar investments or stocks.


Sovereign Bank Offers A Save & Invest CD Package At 2.25%

Sovereign Bank has come out with a limited time offer to help you save and invest your money at the same time. The Save & Invest CD Package takes your money and splits it between two CDs, with half put in a 6 month CD at 2.25% APR and the other half put in a 36 month CD term.

The key is to diversify

This is a great way to diversify your money between saving it and investing it at the same time in a high paying CD package. As half of your money earns a steady high interest rate of 2.25% for 6 months, the other part of your money will be linked to investments in the S&P 500. A great aspect of the 6 month CD term is that there is no early withdrawal penalty, which will give you access to that half of your money.

The best part about the 36 month CD investment is that unlike some longer term investments, it is FDIC insured. In an economy like ours, it is vital to make sure you put your money in a safe institution that is federally insured. The guarantee you have with the 36 month CD is that you will not lose any of your investment, the only penalty for the S&P going down will be that you will not receive any interest for the period. For every year that the S&P goes up you will receive a great interest rate.

Additional details about this offer:

  • Minimum combined deposit for the CD package is $5,000.
  • Must be opened before November 27th, 2009
  • The Invest CD matures on November 30th, 2009; the term will be 36 months from that date.
  • There is an early withdrawal penalty for the Invest CD, and within 6 days of opening the Save CD.

This great offer from Sovereign Bank offers you an easy and low risk way of both saving and investing your money. For more information, visit the Sovereign Bank promotional page here.