Ahead of schedule to pay debts or to save money: what is more important?
Get Rich Tips / / December 19, 2019
By VTsIOM, The proportion of respondents who have savings in Russia has remained largely unchanged over the past years - no more than 34%. At the same time, more than half (57%) of respondents admit that they do not intend to in the near future to save money.
Despite the fact that the earlier sociological study (2009) showed that 26% of Russians have outstanding credit. Almost one in five (21%), mortgage payments account for half or even a large part of the income.
This situation not only in Russia. According to the Federal Reserve Bank of St. Louis (one of 12 banks that make up the US Federal Reserve), the percentage of personal savings in the United States is only 4.2%.
This is a big problem. If we consider that, according to most financial advisors need to set aside 10 to 20% of their income. Some experts argue that if you hang on a double "sword of Damocles" in the form of debt with high interest rates and lack of savings in the long term, the best option is to invest all the money in the repayment of high-grade debt. Is it so? Try to understand.
Savings due to savings on interest
Trying to save money until you have a debt with high interest rates, it's like trying to swim with an anchor tied to his leg.
It is not surprising that people with large monthly bills of credit, there is very little money in savings.
According to a survey Wells Fargo Retirement, more than half of respondents called their credit obligations "biggest financial problem" in life. Of those who said that they did not get to save money, 87% said that the reason is that the money is just not enough, and 81% is explained by the fact that they first want to repay the loan.
Imagine a person with a loan of 550 000 rubles. under 20% per annum for 5 years. If it is the minimum monthly payment will be 9000 rubles. of the principal amount plus interest (average first year payment) 8000 rbl., a month, he will have to pay about 17 000 rubles. 8000 rubles. - a profit of the bank in the form of interest.
If this person will always pay the minimum payment, then the payment of debt it will take 5 years. During this time, in addition to the form of interest, he overpay more than 270 000 rubles.
debt payment must be a priority. It is more important than personal savings, because it has a much greater impact on the future. Especially when talking about the debt on the loan.
However, before embarking on debt repayment "in big chunks," that is, an amount exceeding the minimum monthly payment, it is rational to make small savings.
Most financial advisors recommend that you have savings in the amount of from 3 to 6 monthly amount that you spend on accommodation. That is to say, a "rainy day."
As long as you have a stock in the event of an emergency, you will at least not multiply their duty. Have a small savings, but your main goal should be to pay off the debt.
guaranteed return
The biggest plus early repayment of loan debt - is a guaranteed return of interest for early repayment.
Using the interest rate, balance of payment and the rate, you can count and know exactly how the guaranteed rate of return.
If you are lucky enough to get 2% -depozitny certificate, a refund in case of early repayment of the loan is 15% - this is a very good deal.
Putting more money in the early repayment of the loan, you are not only early because he chooses, but also save a lot of money on interest.
If you can not save now, as "pulls" credit, then you can save without any problems.
The problem is that many banks loan agreement prohibits the introduction of amounts in excess of the amounts set out in the loan repayment schedule. Only some loan programs provide for the possibility of early repayment of debt monthly. As a rule, only welcome a full early repayment of the loan. You should carefully study the terms of lending.
The sooner you pay off your debt, the more will save on interest and longer be able to accumulate in the future.
When you do not have debt, you have more "freedom" to plan a monthly budget - you can save.
What if the money out to early repay the loan, no?
Experts offer a variety of options. Some advised to save others - look for another credit offer with a lower interest rate. In the latter case, the main thing - not "blur" credit history.
From a financial point of view, the most profitable is the first repayment of the loan with the highest interest rate. This will save more money.
But it is believed that it is better to start from the "small" loan as repayment of a debt of at least one psychological gives confidence that you can bring order to their finances.
Do what you need, get rid of debt. Focus on the long term rather than short-term desires. It takes discipline, but in the end, gives more freedom. Lack of debt makes it possible to accumulate funds.