The COVID-19 pandemic seemingly developed with little advance notice, and it was quickly followed by a deep recession that has touched many of our members’ lives. At Eastex Credit Union, we have seen how detrimental the recession has been to peoples’ finances. Those who have not yet been touched by the recession often stress about future uncertainties.
Many are increasingly focused on improving their financial situation, such as by reducing spending and increasing savings. If you are struggling with high credit card debt, debt reduction may also be at the top of your to-do-list. However, one question remains: Should you pay off your credit card debt or increase your savings account balance first?
Review Your Finances
As is the case with many things in life, there is not a clear-cut answer to this question that applies to all situations. To find the answer that is right for you, you must first review your finances. Begin by reviewing your budget to look for opportunities to cut back on expenses. By doing so, you may see how tight your budget is on a monthly basis. On the other hand, you could free up extra money that could be used for debt reduction or savings.
Your budget will tell you a lot about your financial security, but you also must consider how secure your job and income are at the present time. Not all industries have been hit as hard during the pandemic. Some industries may be busier than others, and some may have been affected by mandatory shutdowns for months on end.
Decide Between Saving Money and Debt Reduction
The importance of having a comfortable nest egg may be more apparent now than ever before. In addition to the possibility of losing your source of income, you and your family members may become ill with COVID-19. Lost wages and high medical bills will follow. Take a hard look at your savings account balance and estimate how far it would realistically take you if you were forced to live without income for any reason.
If you have a comfortable emergency fund and do not feel the need to pad your fund given the current circumstances, paying off high-interest debts is a great idea. By reducing these debts, you are lowering your monthly expenses progressively. This means that you may be able to make ends meet with less money a few months from now. As a result, you will be able to stretch the benefits of your nest egg.
Know How to Eliminate Credit Card Debt
Have you decided that paying down your credit card balances is in your best interest? These steps will help you to make the most of your efforts.
1.Create a Debt Reduction Plan
Experts agree that it is best to focus on eliminating one debt at a time rather than all debts at the same time. There are two strategies to consider. You can choose the debt with the highest interest rate, or you can target the debt with the smallest balance. Once the debt that you are focusing on is eliminated, you can move on to the next one.
2. Set Up Recurring Payments
After deciding which credit card to target, determine how much money you can allocate toward debt reduction each month. Set up a recurring payment so that you make steady progress toward your goals. At the same time, stop using your credit cards for a while.
3. Review the Benefits of a Credit Card Balance Transfer
To maximize the benefits of every dollar, you could take advantage of a credit card balance transfer. Eastex credit cards have a low-interest rates on balance transfers; you can bypass interest charges and focus your full payment toward debt reduction.
4. Consider a Debt Consolidation Loan
An alternative is a debt consolidation loan. Unlike a credit card balance transfer, these loans have a fixed term. This means that you will have a specified loan debt payoff date. In some cases, a consolidation loan establishes more affordable monthly payments and facilitates faster debt reduction.
As your trusted credit union in Evadale, Buna, Kirbyville, Kountze and Silsbee and East Texas, we want to help you manage your finances during these difficult economic times. Our team is available to answer your questions about debt consolidation and to help you determine if this is a suitable solution for you at this time. Contact Eastex Credit Union today to learn more.