Advertising Disclosure


Popular Posts

Banking 101: Pay Off Debt or Save - How to Make the Right Choice


Written by Kelly Dilworth | Published on 2/8/2019

Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.

When you carry a substantial amount of debt but also need to grow your savings, it can be tough to figure out whether you should pay off debt or save money. Should you focus on shrinking your debt so that you pay as little interest as possible? Or, should you fund your savings so that you have enough liquid cash to deal with sudden expenses?

Experts believe that for most people, the answer to whether you should pay off debt or save is not cut and dried. It will depend largely on your individual circumstances and your tolerance for risk. Here’s what to consider as you navigate the important decision of when to save and when to pay down debt.



When you should save

If you haven’t set aside at least enough money to cover an emergency expense of between $400 and $1,000, then experts agree that you should focus on boosting those savings first.

“If you have no savings at all or very little savings, that’s an emergency,” said Bruce McClary, vice president of public relations at the National Foundation for Credit Counseling. Without the cushion of adequate savings, you could become overly dependent on credit as a safety net — which would make it harder for you to shed your debt for good.

You don’t necessarily need to save a huge amount, adds Thomas Nitzsche, head of communications for Money Management International. “If you want a rule of thumb, it’s a really good idea to at least get $1,000 saved up before you get really super aggressive with debt,” he said. The question of whether you should pay off debt or save money depends primarily on your personal circumstances and how much risk you can afford to take.

Stephen Newland, an accredited financial counselor and coach at Find Your Money Path, advises his clients to take a financial stress test before deciding where to focus their attention. For example, he recommends asking yourself how much misfortune you think you could withstand with the savings you have now. “If you lost your job and you subsequently lost your income for six months, could you make it?” asked Newland. If your answer is no, then you probably need to rethink your strategy.

Other risk factors could also tip the scale in favor of boosting your savings, Newland affirmed. For example, “If you have an old roof on your house, you need to keep a little more in reserve, or if you have an older car or questionable job prospects.”

You may find it tempting to put off emergency savings if you have a lot of debt. But unless you’re sure you’ll be able to pay off your credit card or other high interest loan balances quickly, you are taking a risk by putting off saving for years. “It’s inevitable that something’s going to happen, especially if you have a long debt road,” said Newland.

Experts typically advise that you save at least three to six months’ worth of living expenses; but, depending on where you live and whether you have a family to support, that amount could be more than you can handle. “You may find saving up a $3,000-to-$5,000 buffer more doable,” said Newland.

If most of your debt is relatively low interest, you may also want to consider focusing on your long-term savings, such as retirement. For example, paying off student loan and mortgage debt quickly isn’t usually as crucial as shedding high-interest credit card debt. But delaying your retirement savings for too long could make it tough to catch up later.

If your employer offers a generous 401(k) matching program, you’ll also leave a significant amount of money on the table if you don’t max out your contribution. If your debt is low enough that you can afford the interest on your loan(s), you may decide to be somewhat less aggressive with your payments.

When you should pay down debt

If you don’t have a lot of savings but have other resources that could help bail you out in a crisis, then you may have more flexibility with your get-out-of-debt strategy.

For example, Nitzsche recommends looking at your total financial picture, not just your savings, before deciding how much emergency cash you need. “Do you have a boat that’s paid for, or do you have a pretty healthy 401(k) that you have access to for a loan in a pinch?” he posed. If so, then you may not need as much cash on hand and can focus on reducing your debt instead of saving.

According to Nitzsche, you also may be able to risk saving less if you have a strong credit score — because that will give you access to interest-free credit cards and balance-transfer deals that you can use to finance unexpected purchases.

In addition, Newland points out, recent grads who are living at home or who still receive financial help from Mom and Dad may be able to afford a more aggressive debt strategy. The more resources you have available to you, the more risk you can afford.

The type of debt you are carrying also matters. For example, “If you’ve got a large amount of credit card debt and you’ve got a high annual percentage rate (APR), that should probably be your priority,” said Beverly Harzog, a personal finance and credit card expert for U.S. News and World Report.

Credit card interest is notoriously high compared with other loans. “Compound interest is really evil when you’ve got credit card debt,” said Harzog. If you don’t pay it down quickly enough — or worse, if you only pay the minimum amount due — you could wind up owing far more than you ever borrowed.

McClary recommends doing the math before deciding whether to pay off debt or save. The faster you pay off debt, the more money you’ll save overall. “Take your debt and look at it based on how much it is costing you to pay off,” he said. “I think what you’re going to find is that paying off your debt faster, clearing it out of your way — even if it gets in the way of growing your savings for a short amount of time — will help you in the long run.”

If you have enough money saved for emergencies, you may also want to consider paying off other loans, such as your mortgage, more aggressively. Just be aware that your lender may not readjust your required monthly payment unless you ask.

Best ways to save

If you decide to focus on your savings, it’s a good idea to be strategic. You’ll reach your goals more quickly if you take advantage of the many tools available to savers.

Choose the best online savings account

To get the best possible return, look for a savings account that offers an above-average amount of interest. You can use a customizable tool to compare savings accounts and get a feel for how much you can earn.

Take advantage of technology

Banks and credit unions are constantly developing new resources for savers, including savings calculators, colorful budgeting tools and automated money transfers. In addition, a number of apps have popped up in recent years that help savers to sock away extra change and automate their savings.

Upgrade when you’re ready

Once you have enough cash saved and you’re ready to take bigger risks with your money, research your other savings options. For example, if you can afford to let go of your cash for a longer period, you’ll earn more interest through a certificate of deposit. Or, if you’ve saved up a significant amount, you can invest your money instead.

Best ways to pay down debt

If you decide to focus on paying down debt, you also have a number of methods available to you.

Debt snowball vs. debt avalanche

Two of the best-known debt-clearing tactics are the debt snowball method and the debt avalanche method. The debt avalanche method is the most cost-effective: Pay off the balance with the highest interest rate first (while continuing to pay the minimum amount due on your other accounts) and then tackle the account with the next highest rate. But some research has shown that the debt snowball method — which advocates paying off the balance with the lowest interest rate first and then using that momentum to keep going — can be more motivating to certain borrowers. It can also be easier to stick with, believes Newland, because it is less overwhelming. Choose the method that best fits your personality.

Use a budget to help you carve out bigger payments

Look for opportunities to trim your expenses, recommends Harzog, and apply those savings to your balances. “Go through your budget with a fine-toothed comb,” she said.

Look for ways to reduce your interest payments

If your credit score is high enough to qualify, you’ll also save a substantial amount of interest by transferring your balance to a credit card with a low or 0% APR, or by consolidating your debts with a low interest rate personal loan. Alternatively, you may be able to lower your interest payments by talking with your creditor, advises McClary. “If you feel that your progress toward paying down debt is stymied by paying a higher rate than you [think] you deserve, it’s on you to make the first move,” he said.

Pay off debt or save: make the right choice

When deciding whether to pay off debt or save, there is no perfect answer. Before you commit to a strategy, think carefully about your finances and what resources are available. You may find that the choices you made years ago are no longer a good fit for today.

Comments
nao597
nao597   |     |   Comment #1
These new articles written by new people are watering down the really good content of Deposit Accounts. There’s one guy that ALWAYS writes a good article, but it’s getting interspersed with this “stuff”. From the article: colorful budgeting tools, debt snowball, debt avalanche. Is there a wave of millenial retirees I don’t know about? Most people on this site don’t have any debt anyway, that’s why they’re here. Just try not to have any debt and if you do be smart about it and adjust elsewhere till it’s gone. No apps or crayons needed.
Debt
Debt   |     |   Comment #2
I don't understand how people get in debt. How about drop the pricey cable plan, pricey cell phone data plan, don't eat out, etc. Boom problem solved.
really??
really??   |     |   Comment #55
What about an illness, loss of job, injury, helping a family member with a major crisis, accident that was not you fault causing significant loss of work and bills. there are many more. not everyone is a deadbeat living beyond their means. life happens. if you are fortunate enough never to experienced any hardship then good for you.
Tiired Iron
Tiired Iron   |     |   Comment #103
The recent federal shutdown demonstrates how many and perhaps a majority of Americans have no expectation beyond the next paycheck.

There are people who suffer because of an external hardship, but those things will happen and people should plan for them.
Duck
Duck   |     |   Comment #3
I agree these articles are for elementary school kids if this is what has become of DA it really has become a sad day I understand these articles but this is not the place for them. I guess I am blessed that I was taught at a very young age if you ain't got it don't spend it and if you want it and only after your responsibilities are taken care of save an then go get it but this is a lost belief nowadays. I am far from one would call rich but my house is paid for I only charge things for the rewards lol an I do not carry forward balance on cards I pay off every month my cars are paid for I have no debt. The millenials are a give me gen they see others with it and just want it they do not understand one must work an save first to be able to get it
nao597
nao597   |     |   Comment #5
The first bullet point is: When you should save. That’s a slap in the face to regulars here who over a lifetime of smart decisions have in aggregate tens, maybe hundreds of millions of dollars. This isn’t getoutofdebt.com, it’s depositaccounts.com. But this site is under new ownership and it’s the fresh, modern look. I just hope Mr. T doesn’t disappear completely.

I know what another Mr. T would say, I pity the fool that lets a good website slide into oblivion and drive everybody somewhere else. Clicks are $$ Lending Tree, don’t fix what’s not broken just for the sake of change.
deplorable 1
deplorable 1   |     |   Comment #10
Yeah I hope this is just a add-on and isn't going to replace the regular content of this site. The last thing we need is another Bankrate clone. I'm so tired of the typical Suze Orman/Dave Ramsey generic advice for the masses drivel.
nao597
nao597   |     |   Comment #18
Agree 100%. But they’re coming more and more often, and the target audience seems to be people with opinions on the best artisinal mayonnaise, ie, grasshoppers, not ants, if you remember the old fable. If Ken leaves I’m gone. It just seems like he’s passing the baton and I pray that’s not the case.
deplorable 1
deplorable 1   |     |   Comment #7
@Duck: I agree but this is the "basic banking series" for new savers. You never know who is reading these. The first step to changing the mindset of the misinformed youth would be to show them that there is another way. It's not that millennials are stupid but just that they have never been taught. Not everyone has the benefit of having good parents or even having parents for that matter. Most parents can't even handle their own finances let alone pass on any useful information to the next generation. I still remember what it was like starting out with nothing and thinking it was impossible to actually save enough to retire. I'm trying to go back in time and think about what advice might have been useful when I was just starting to save.
Duck
Duck   |     |   Comment #102
That is true an I do take care of my mothers finances now mostly because she is not up to it or jumping through some of the hoops we do to get these better returns shes older and deserves to relax now it is the least I can do. I think we all understand there are others out there that did not have the guidance some of us had your next post hit the head bullseye "She was telling me yesterday she remembers taking CD's back in the 80's @13%" I was a little one then but asked why didn't you take them for 40yrs lol . It is scary nowadays though when you go to a store an your cashier cannot count back change or you lose power an they cannot add to ring you out I remember working at 7/11 when I was younger and still helping customers when we had no power.
deplorable 1
deplorable 1   |     |   Comment #4
For me the answer was always as simple as math. If the interest rate you are EARNING on your savings/investments is lower than the interest rate you are PAYING then you MUST pay off the debt first. This assumes that you at least have a savings account with a couple thousand for emergency expenses. You could also use a credit card for emergency expenses and pay it off in 30 days with 0% interest in a pinch. The only debt I ever had was a mortgage and I even paid that off early when interest rates dropped. The longer you wait to pay off debt the worse it will be for you in the long run because it will eat up your earnings. If I actually had debt I would pay it off with a 0% no fee balance transfer. This would stop the interest charges instantly. Once the 0% term was up I would just transfer it to another 0% no fee bt offer. Keep doing this while making the minimum monthly payment on time until your debt is paid off. When used correctly credit cards can be your best friend. When used incorrectly they can be your worst nightmare.
???
???   |     |   Comment #6
If these articles are geared toward Basic Banking for the under informed I dont think your continual pushing of techniques that require strict attention to detail is helpful to people who already are having debt problems and cant pay the bills they already have.
Your disclaimer at the end says it all.
deplorable 1
deplorable 1   |     |   Comment #8
So paying 0% interest vs. paying 39% interest on a credit card debt wouldn't be useful for those trying to get out of debt!?! I'm sorry but this method is the best and fastest way. Any other way would require:
1. Paying more interest
2. Taking longer to pay off the debt
I don't give the typical "cookie cutter" advice you can get that anywhere.
Mike
Mike   |     |   Comment #21
deplorable 1, I used that method in the past, it worked while the transfer fees were $0.00, today they charge 3-5% transfer fee, not doable anymore.
deplorable 1
deplorable 1   |     |   Comment #187
@Mike: You can find these 0% offers with no fee but even if you were to pay a 3% fee for a 15 month balance transfer it would still be the best way to pay off debt. The fees can range from 1-5% or are sometimes even capped at a flat $50-$100 which is still useful. The average student loan is something like 6-7% and personal loans are even higher. Credit card debt averages around 17-18% but there is actually no limit to how much they can charge.
http://www.interest.com/credit-cards/news/is-there-a-legal-maximum-interest-rate-that-a-credit-card-can-charge/
My point is that even with a balance transfer fee this is still the cheapest loan you will ever get from a bank.
Corry
Corry   |     |   Comment #22
#4, please tell us what banks are having $0 transfer fee.
nathan
nathan   |     |   Comment #23
deplorable that method used to work in the past, now with the fees it is impossible. Do not tell the young to do that, they will wind up in jail.
deplorable 1
deplorable 1   |     |   Comment #27
I guess you guys didn't know they are back. Look here there is a list all with NO FEE:
https://www.doctorofcredit.com/master-list-no-fee-no-apr-balance-transfers/
I assume the young have google and a smartphone which is all that is required to look this up.
Tiired Iron
Tiired Iron   |     |   Comment #104
Guess deplorable doesn't want to add, that NO FEE list is from March 2017.

Two years old.
deplorable 1
deplorable 1   |     |   Comment #150
That list is updated regularly and I am in the process of doing 3 of these currently so they are still live. The offers change regularly and this isn't a complete list either. My math is pretty good 4 monikers = 1 troll.
Bass Ackwards
Bass Ackwards   |     |   Comment #151
60 day and 90 days of zero interest?

This is like the reward checking accounts with 10 debits per month.

Sure it is legitimate and might be worthwhile for a person with no other way to make an income. Open a new credit card, transfer the balance, every 2 months, for 2.5% interest after 6 transfers in a year.
deplorable 1
deplorable 1   |     |   Comment #158
No these are anywhere from 6-21 months @ 0%. I had a Bank of America offer for 18 months a while back. I had one for 2 years before. The best offers currently are 15 month 0% no fee from Chase and BoA. I don't even bother with the 6 month deals.
Tiired Iron
Tiired Iron   |     |   Comment #105
The reality is, most people, who are willing to work, will do better by getting a part time gig than trying to squeeze another penny out of a dollar.

I understand the world of high finance is more ****y, to some people.
Tiired Iron
Tiired Iron   |     |   Comment #106
se xy is banned here.
51hh
51hh   |     |   Comment #41
There are still a few (very few) opportunities for zero-transfer-fee Balance transfers (referred above). There are even 1-2 banks/credit unions that periodically offer 2-3% payback for balance transfer (a secret).


All valid and legal since it is those banks/credit unions that offer it.  One is just following their rules to earn some bonuses.  It does take some labor and intelligence to find them.  :-)
Jenn
Jenn   |     |   Comment #26
your method looks like cheating the system, no wonder the credit card rates are going up, someone will have to pay for such schemes.
deplorable 1
deplorable 1   |     |   Comment #28
It's not cheating. This is exactly what 0% no fee balance transfers are intended to do! Heck even if you had to pay the 3-5% balance transfer fee it is still cheaper than the interest rate you are paying on credit card debt. It is also a lower interest rate then a personal loan or line of credit. I paid off my mortgage with these(not directly had to deposit into the bank first).
Jenn
Jenn   |     |   Comment #29
In your sample, you missed to add the interest charged by the credit company on top of the 3-5% transfer fee paid. If I transfer $50K it will make the transfer not doable. Furthermore, when the bank see you again and again to transfer money in and out few times, they will close your account and demand immediate payment. Did not work for me.
deplorable 1
deplorable 1   |     |   Comment #32
These are all 0% APY balance transfers I'm talking about. As long as you make the minimum payment on time each month the interest is 0%. Even if you only get a small credit line you can at least wipe out a portion of your debt interest free.
Matt
Matt   |     |   Comment #52
#32, You are misleading us, there is always a monthly payment even if the balance transfer is free of commission.
On a $100K balance transfer the monthly payments are significant and if you miss a payment, the whole thing is recalculated from day one with new interest and penalty added to it. It may become a disaster for someone who has lost the ability to pay in the middle of the cycle.
deplorable 1
deplorable 1   |     |   Comment #60
I'm not misleading anyone. like I said it is called the "minimum monthly payment" and it must be paid on time each month to keep the 0%. This payment can vary from 1%-2.5% of the balance each month. Bank of America and Chase only charge 1% so in your example your minimum payment would be $1,000 on a $100,000 loan. The following month your payment would be $990 and so on. Remember as you pay it down your minimum monthly payment drops as well.
Ginna
Ginna   |     |   Comment #66
#60, If you can afford to pay $1000 a month, why bother with it, you are just returning back the fictitious interest only and not the principal, make one boo boo and you are at the slaughter house.
deplorable 1
deplorable 1   |     |   Comment #76
@Ginna: Because the $1,000 payment is 100% principal as in no interest. After the 15 month 0% balance transfer at Bank of America for example you would only owe $85,000 if you kept making that payment. Then you transfer that balance to another card and keep on paying a monthly payment until it is gone. Using this method you go from paying what 27-39% interest to paying 0% permanently. I even forgot to make a payment once and guess what when I called thinking they were going take the 0% away they told me just to make the payment now and I could keep the 0% rate no problem. Credit card companies get a really bad rap.
111
111   |     |   Comment #36
#26 - You say "... no wonder the credit card rates are going up, someone will have to pay for such schemes." In a way that's true, but it's been true in nearly every society where lending has occurred since the ancient Babylonians. There have always been those who paid as agreed, and always those who either paid late or failed to pay at all. Those in that second category were (and are) penalized by having their rates raised, either on that loan or subsequent ones.

This business of "balance transfer arbitrage" is sometimes tricky. I have little doubt that when banks formulate their "0%, no-fee balance transfer" offers, some of them may be factoring in that a certain percentage of customers who take advantage of these may: 1) fail to make a minimum payment or two and therefore suffer much higher interest rates, or 2) become "addicted" to the "free cash", and not have a plan to repay in full the balance when the rate changes - and again the penalty is higher rates. To some degree, these higher rates will subsidize the lower rates (or zero rates) for those who pay on time.
Betty
Betty   |     |   Comment #31
Yeah, when the credit report shows all those active accounts opened within a year, the credit they give you is less then $5k, and the timing can be impossible to synchronize, some banks statements are issued on the first and some are issued on 10th and some are issued on the 20th and so on, sooner or later an overlap can happen and all of a sudden you are swimming with the sharks.
deplorable 1
deplorable 1   |     |   Comment #34
@Betty: Ok then just save money in a .25% savings account and pay 35% on credit card debt. Let me know how that works out for you. I was trying to give some better advise than that in order to get the debt paid down faster. I have yet to see anyone post a better idea for paying off debt. I do this regularly and it only drops your score temporarily and it shoots back up as soon as you start paying the debt down.
51hh
51hh   |     |   Comment #43
Yes, very good point. If one finds such a deal (even with 2-3% bonus), it is almost like free money as long as one is prudent and timely in monthly payment, minimum impacts to FICO.
51hh
51hh   |     |   Comment #92
deplorable 1 (#34): It is amazing how many here do not grasp the basic approach of 0% (fee/rate) balance transfer. It is also amazing how you can take time (and patience) to calmly explain/describe the details.  

To some that may be interested, my suggestion is (1) to keep an open mind (many do earn a lot from this method), (2) to try it for yourself prudently (keys: seek fastest way to get the money into your bank account, pay minimum balance monthly, pay in full when offer ends, etc.)  


I would just say that this forum may not be the proper platform for such discussions. That is why the very few can still take full advantage of this tactic.
deplorable 1
deplorable 1   |     |   Comment #133
Thanks, It can be very frustrating trying to explain this to those who have been brainwashed and/or misinformed about credit cards by the media and various so called financial gurus. For anyone who is interest in doing this here is a basic step by step guide:
https://www.wisebread.com/step-by-step-guide-to-doing-a-balance-transfer-on-credit-cards
A better more advanced guide here:
https://www.mymoneyblog.com/how-to-make-money-from-0-apr-balance-transfers

Keep in mind that no guide is 100% complete. The most important thing to remember is do not under any circumstances make new charges on a balance transfer card. Use a cash back credit card like Citi double cash for purchases and a balance transfer card like Chase Slate for balance transfers. Trust me even if purchases are 0% as well don't do it as it makes things way too complicated. Feel free to ask me any questions as i have been doing this for decades.
51hh
51hh   |     |   Comment #184
Betty (#31): Come on; for statement sync, just request a change on due dates to sync up at the most convenient payment time for you every month for all cards.


All my cards sync up toward the last few days of the months on closing dates; for a better FICO (minimizing debt to income ratio).


And 10 votes... amazing, simply amazing :D
deplorable 1
deplorable 1   |     |   Comment #186
@51hh: As you can see from the comments there is a SEVERE financial literacy problem in this country. Which is exactly why we have a debt problem. Take college debt for example. In my opinion most colleges would prefer that their students be financially illiterate. This way they will continue to pay for overpriced schooling and run up their debt sky high. Even if the job they might be able to attain with their degree would require another 10 years after college just to pay off the debt. This will bring them to age 32-34 before they can even start to save money. It's no wonder we have a student loan crisis in this country.
Mike
Mike   |     |   Comment #19
This article missed the most important habit:
Save for it before you buy it, that way you teach the young to crave savings, because they can not have it unless they save for it, see how simple it is. Forget these credit methods and ways for handling debt, that is how the character of the young is changed the wrong way, tell them, you can not have it unless you can buy it after the saving equal the cost of the item(s).
deplorable 1
deplorable 1   |     |   Comment #35
You are 100% correct Mike but they are already in debt so that ship has sailed. Now they need to learn how to deal with the reality of that debt. I was just pointing out that the same vehicle that got them into debt(credit cards) can also be a tool to help get them out when used properly.
Matt
Matt   |     |   Comment #57
Not working and young, should not have access to credit cards, period. If they have some income and miss a payment their FICO score is ruined and the interest on that card will double or triple and they would not want to pay 2-3 more for the items they bought last year. Tell them, if they feel not responsible for the debt, no more buying allowed and if they are under 18, call the bank and cancel the account. They will never learn responsibility, if you are there as a lender of last resort.
Newbie1
Newbie1   |     |   Comment #61
Do the not working and young have access to credit cards and debt? I ask because I was refused a credit card when I was younger. Is credit really easier to obtain today? I know some parents provide their children with cards. Financial Literacy is a life skill that would ideally be taught starting in elementary school.
Ginna
Ginna   |     |   Comment #67
#61, anyone can get a credit card if you show steady income, even the handouts from your parents counts if you send them the monthly statement where the income shows as deposits. Secondly, you can get secure credit card against a saving or checking account. Thirdly, kids can get a separate credit card from a parent as a user only.
Fourth, you can get credit card as a line of credit on any asset the bank find it acceptable.
I'm sure there are other methods to get a credit card, like asking your grand parents for their SS# and apply in their names, but you use it as your own and you posses the card and many more other schemes.
Newbie1
Newbie1   |     |   Comment #69
@Ginna
Ah, the problem was backin the day the parents weren’t making deposits into an account on my behalf. Clearly I am a member of the unlucky gene club. I am pretty sure the secured cards didn’t exist back them. My first credit card was obtained while I was at college as a targeted offer for students. I guess the acceptable asset was my education. I do wonder if it helped that I had no student loans as I worked full time and studied part time. Asking grandma and grandpa for their SS number?
deplorable 1
deplorable 1   |     |   Comment #77
You sound like my dad! I got my first credit card when I was 18. I wanted a Mastercard(because it was the most accepted) and they turned me down because I had no credit history. I asked my dad to co-sign a application with me and he refused because he didn't think I needed a credit card as I was just a kid. Boy did that tick me off. I told him I had $10,000 in the bank and they would probably only give me a $1,000 credit line anyway. So I went over to Sears and applied for a store credit card and was approved. A year later I got my first Discover card which was the very first cash back credit card. I have since had over 100 credit cards with various banks and never paid a dime in interest or fees. I still hassle my dad about not thinking I could handle a credit card.
deplorable 1
deplorable 1   |     |   Comment #78
The post above was for Matt comment #57.
Brokered
Brokered   |     |   Comment #30
I know a thirty-year-old couple with car loans, student loans and a mortgage. They spent more than $15,000 last year on vacations.
Betty
Betty   |     |   Comment #33
#30, exactly, there is no way you can teach them to save after they have tested the free credit habit. Such people will wind up bankrupt and even homeless, should their job situation changes dramatically.
111
111   |     |   Comment #37
Yes, there are probably some people who should not do 0%, no-fee credit card balance transfers. In fact, there are probably some people who should not have credit cards at all. However, is that a reason why these transfers shouldn't be available to anyone, or that they should not be recommended in situations where they might be useful?

If a person has the financial backbone of a jellyfish, they themselves have a problem that needs to get fixed. No amount of "blaming the messenger" (i.e., the credit card, or some other inanimate object) will get that done.
Anon
Anon   |     |   Comment #38
Assuming that none of us here is perfect, it might be helpful to see a thread in which we all list our most ill-advised financial moves. The dumbest things we did with money when young, the biggest blunders, even as older adults. So many here claim to have hundreds of thousands in savings, yet I'd guess they still have many wasteful ways in their lifestyle.
deplorable 1
deplorable 1   |     |   Comment #47
@Anon: This is a bit embarrassing but it may help someone. Back when I was a kid I always did odd jobs to earn money like cutting lawns, snow shoveling, painting etc. I would save most of it except for a few bucks to spend for the week. I finally saved up $5,000. I was so proud of what I had accomplished that I told a friend(dumbest thing I ever did). Well next thing I knew everyone I had ever met knew I had this savings. They would hit me up for a loan or come up with great ways to spend my money for me because I was "rich". Long story short I loaned out some and ended up spending the rest and had $0 savings at the end. When I ran out of cash all my so called "friends" mostly disappeared. Ever since then I don't tell anyone my savings balance. As I have gotten older I'm grateful that I learned that lesson young. Another lesson I learned from this is to never drain all your savings as it is much harder to start from scratch again.
Anon
Anon   |     |   Comment #51
Hopefuly most of us learn from our mistakes. Change our ways. Mature a little. Become more responsible. Become more wise. Thats just life and I try not to beat myself up too much for past dumb decisions. Whats sad is those that never choose to change. They are still in debt in their mid sixties.
???
???   |     |   Comment #62
didnt you have a hel of a good time?
you werent suckered .
deplorable 1
deplorable 1   |     |   Comment #80
@???: lol Right. Well those were the Cheech and Chong days so i guess you could say it went up in smoke.
Vacation?
Vacation?   |     |   Comment #39
So where did you go on vacation?
Newbie1
Newbie1   |     |   Comment #74
#30 If / when interest rates rise they may have a more modest vacation budget. There are many in their age group whom have come of age during this period of historically low interest rates and low cost of borrowing. I am more concerned about those with debt who couldn’t afford to go on vacation last year.
RJM
RJM   |     |   Comment #40
When I was young and still had a car payment, I wanted to prepay extra on the car...just in case I lost my job. I called them and they said I was free to prepay any amount I wanted but that I could not skip any future payments. That is, I still owed a payment every month.

Because of that, I just set it aside in a savings account and then paid it all off at once.

I probably should have paid some and held back the rest but I was a paranoid about getting fired, quitting and then being unable to find another job and I did not want to lose the card or ruin my credit.

So I just sat the money aside and then when I had enough, paid it off in full. I think the final 17 payments all at once.

Probably should have paid some early and saved some.

I eventually lost that job but had the car paid off. Got another one that I didn't really like so only stuck with it about 8 months. Then I determined to start my own business and not work for anyone else. And I have not. I also swore off debt. And, other than a 2 month credit card cash advance when I was starting my business and later playing arbitrage by borrowing at 0% and sitting it in a savings account, I have never carried any debt. (waited & paid cash for a house. Probably should have bought sooner and borrowed to do it but I had my reasons for not doing it at the time)

I read something like this when I was young and it made a big difference in me retiring early versus always having a new car.

https://www.daveramsey.com/blog/drive-free
deplorable 1
deplorable 1   |     |   Comment #45
@RJM: Dave Ramsey and Suze Orman drive me crazy with their "cut up your credit cards" spiel. It isn't the credit cards that are the problem it's the way in which some people use them. I wish these guys would stop telling everyone that credit cards are bad and start telling them don't buy things unless you can pay off the bill at the end of the month. If you are using a debit card vs. a credit card for spending you are leaving 2-5% cash back on the table as well. Then on top of that those debit cards can lead to massive overdraft fees if they are tied to checking/savings accounts with overdraft protection. These kids are thinking oh if I don't have a credit card I can't get into trouble and then they run into a string of overdraft fees. Then they run out to the payday loan store because they don't have any credit cards or savings and pay 1,000% interest for a one week loan to pay off the overdraft fees and spending for the week. Next week the cycle repeats itself. I know people who do this and they think they are smart not having a terrible credit card.
RJM
RJM   |     |   Comment #46
I can see where they are coming from. Their audience is the person who will spend if they have a credit card. (Those with no self control)

As for the cash back, the argument against credit cards says you and I spend more unconsciously because swiping a card does not "hurt" like cash does. And if I spend an extra $2.00 on a fast food meal, the 2% cash back dwarfs in comparison.

But, I think many young people and those in too much debt need to see the thing about cars, because that is how so many get in so much trouble.
(Even though I could pick at parts of the video)
---------
OFF TOPIC, can you tell me how you can post without being a registered user? I tried logging out, Could not post. Created a new account, it forced me to pick a username so again, I have to have a username.

I have one or more stalkers who change usernames every other post.

If I were to be able to do that, my stalker would not be able to find me.
deplorable 1
deplorable 1   |     |   Comment #49
I can't post everywhere, just the main articles. Only registered users can post in certain areas. My guess is that since you are registered it is requiring you to login. Try clearing your browsing data and re-booting your computer and use chrome incognito mode.
RJM
RJM   |     |   Comment #56
I went to incognito mode and was able to do a test post on the first topic, bank purity or whatever. But to post here...I had to log in. Same for the community topic.

I don't like clearing any of that stuff so I may just have to come up with another username & then switch when he finds me.
Newbie1
Newbie1   |     |   Comment #54
I am registered but generally post without logging on unless I want to post to the forums, so it is possible. The site logs your IP so will assign the same graphic based on that if you post often enough. It is one method of identifying the name change posters
Suzy O
Suzy O   |     |   Comment #48
It kills me when Ramsey keeps telling people to go get an extra job delivering pizza. Pay off that car loan by delivering pies and in the process using twice the amount of gas. In my experience you can't tell people anything about their finances. Suggestions to young people, and good advice hits a road block and never makes it to their brain.
RJM
RJM   |     |   Comment #50
Suzy, his point is a get 2nd job and use the net to pay off bills or the car or whatever.

I post on yahoo answers and there is a dozen people a month who want to get rid of a car they cant afford and are $2000+ upside down. Reality is you have to slowly chip away at that, No magic answer. Others are in the same boat but want a different car. SMH,

Most people would do well to stay out of car dealerships forever.
Matt
Matt   |     |   Comment #53
Gen-X could care less about responsibility or even paying back the debt, once they spend the money, they look for new credit and try to forget the old obligations and there come their parents to save them from being charged for fraud.
Speaking of fraud, here is something for you:
https://www.youtube.com/watch?v=zLiQJUvee0s
Jean
Jean   |     |   Comment #58
I somewhat agree with Matt. But not all are irresponsible. The lucky ones had good practical parents. I email all these basic banking articles to the grandkids. I wonder if they even read them or open the email.
David K
David K   |     |   Comment #59
If you raised your kids right, don't worry.
Ginna
Ginna   |     |   Comment #68
#59, it is not the parents fault, it is the school's agenda, make the kids dumb and let the society take care of them.
Read agenda 21 and you will find why.
Newbie1
Newbie1   |     |   Comment #73
Ginna, didn’t you just school me on the topics of parental handouts and grandparents giving kids access to their SS numbers. Can’t really blame the school system for those.
David K
David K   |     |   Comment #75
Ginna, parents have to take some personal responsibility. Government makes lousy parents, except when Trump separates kids at the border.
deplorable 1
deplorable 1   |     |   Comment #85
@Ginna: Basic financial literacy needs to be taught in schools from day one I agree. Even if it were it is still the parent's responsibility to ensure their kids are well informed and have a understanding of basic finance.
deplorable 1
deplorable 1   |     |   Comment #79
@Matt: Wait are you sure you got the generation right I'm gen-X. I think you meant gen-Y(millennials) or gen-Z.
Green_and_Gold
Green_and_Gold   |     |   Comment #42
Correction needed: "But some research has shown that the debt snowball method — which advocates paying off the balance with the lowest interest rate first and then using that momentum to keep going — can be more motivating to certain borrowers." The snowball method is paying off the lowest balance first, not the balance with the lowest interest rate.
Ken Tumin
Ken Tumin   |     |   Comment #64
I just wanted to reassure everyone that these Banking 101 articles will not be reducing my blog posts on deals, strategies, weekly summaries, etc. They are only adding to my content and are intended for DA newcomers who are trying to learn the basics of saving and deposit accounts. We are working on ways to minimize their exposure to the regular DA readers. We greatly appreciate the DA saver community, and we will ensure DA will remain a useful and respected resource for the community.
???
???   |     |   Comment #65
Thank You Ken for keeping your eyes on the horizon and hand on the tiller
kcfield
kcfield   |     |   Comment #83
Thanks Ken. That sounds like a helpful strategy.
deplorable 1
deplorable 1   |     |   Comment #109
Thanks Ken. I see these articles as a opportunity for us seasoned savers to educate and inform those who are just starting out. We all complain about how the younger generation doesn't know what they are doing but maybe this is because nobody ever taught them.
kcfield
kcfield   |     |   Comment #81
I think this article is appropriate because it indicates clearly that it for beginners. An experienced dancer, martial artist, or tennis player would not be upset if their facility offered beginning dance, karate, or tennis classes; they would simply pass them by and sign up for advanced classes. However, if their club ONLY offered beginners classes, then there would be cause for concern. As several people have accurately pointed out, most of us here are experienced savers. So, my suggestion to Ken, Kelly, and other writers on this site is to offer a balance of articles: some for beginning savers; and the majority for seasoned savers. In that way, Deposit Accounts will be able to welcome new folks, and still connect with their readership base.
Brokered
Brokered   |     |   Comment #94
Debt is enslavement. Most of us on DA we recognized that early on and worked for our economic freedom. That's why we look for CD rates.

Our society is addicted to debt and if all debts were suddenly paid in full the economy would collapse. Sad, but true. The danger for those without debt is that you will be asked (or ordered) to relieve the debt of those who can't or won't repay their debts. This is the insidious nature of large scale consumer debt. Someone defaults and we all end up paying more. Like retail theft, the cost is always passed on to the next guy with ready cash.

These debt strategies are boring at best. The best solution is to make more money AND spend less. When the next recession arrives be prepared, once again, to bail out the selfish who will demand "relief" from their oppressive debt loads. I believe in allowing people to fail. I'll buy you a meal but I'm not picking up your mortgage, student loan payment or cell phone contract.
111
111   |     |   Comment #97
#94, Brokered - With all due respect, I can't agree completely. I WOULD say that some debt, without the ability to comprehend or manage the risks, IS self-enslavement. There are some people who shouldn't use debt as a tool, but heck, there are some people who shouldn't be allowed to touch a knife or to dress themselves in the morning.

These "balance transfer arbitrage" strategies, which I used heavily back in the day and still use somewhat today, do require some degree of thinking and planning - and good credit. They can of course be done in addition to "spending less" and "making more money". And ironically, it's actually the folks who go hog-wild with credit cards WITHOUT thinking and planning, who sometimes get themselves into trouble.

I'm here on this website mainly to look for good CD and liquid rates, just like yourself, but a question about these balance transfer strategies was posed several weeks ago in this forum, and I contributed an answer (as did others). I'm definitely not trying to "sell" anything. However, use of these strategies, together with other good financial practices, has allowed me to retire early and slightly increased our standard of living. For people who are using their balance transfer cash to speculate on penny stocks, or who are desperately looking for someplace else to transfer their balance because they didn't plan ahead for when it became due, it may be a different story.
DOA
DOA   |     |   Comment #98
Exactly. Sad but true.
111
111   |     |   Comment #130
#119, Brokered - Here's the ironic thing, with all due respect. You seem to be talking about issues which are basically macro-economic in scope - the student loan issue, the mortgage/financial crisis of 2008, etc. These are situations where by-and-large, debtors were (and possibly still are) clueless about their debts, got themselves into trouble, and in some cases, then asked for bailouts. So did some banks, as we all know.

That's a very different thing than using credit as a tool to make some spare cash. BY DEFINITION, to be done successfully the latter requires the balance transfer initiator to be knowledgeable about their credit and to plan well. I'd guess that 99% of the people who got themselves into trouble with credit from, say 2007 to 2012, were NOT doing the credit card arbitrage thing, but were instead trying to flip houses after the marker died, or were just clueless about credit cards in general.
deplorable 1
deplorable 1   |     |   Comment #180
Holy deletions Batman! Sorry for the off topic posts.
DOA
DOA   |     |   Comment #181
Deplorable 1,

I supported part of what you said with actual math to prove what you were saying. Trouble is I sent it and it was deleted (dead on arrival).
deplorable 1
deplorable 1   |     |   Comment #182
Math for a 0% balance transfer vs. savings? Or math for how much debt you would pay down at 0% over a 15 month period? I'll do a month by month breakdown if someone would give me the starting debt and the interest rate they want to use. I would love to see someone argue with the math! lol
Smokeboat
Smokeboat   |     |   Comment #185
What you saved is what you got 'cause what you spent is gone.

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.