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Deciding between paying off debt or accumulating savings

To some Kentucky residents, debt is considered a necessary evil while others cannot stomach the thought of owing money to anyone. When people are considering paying off debt early, they might first want to think about their savings. Paying off debts is a relief, but building up savings might be more important than paying off obligations quickly.

Looking at their finances can often enable people to determine whether it is better to pay down debt or hold onto it. To do this, a look should be made at the amount and type of debts along with their interest rates versus the savings and the interest rates thereon. If the minimum payments can be made, one may wish to put money into retirement funds, emergency funds, save for a child's education and more instead of paying down debt. If these funds are available, then it is time to prioritize whether more saving is necessary or whether it is prudent to make extra debt payments.

If an emergency like a sudden layoff happened, one might need funds that are equal to about six months of household expenses. This could also provide protection from sudden unforeseen expenses like a car breakdown. After creating an emergency fund and savings funds, a person should consider whether adding to savings will yield a greater rate of return than paying down debts.

Some people have trouble focusing on saving for the future when weighed down with worries about current debts. Those facing wage garnishment or foreclosure might be able to find debt relief when consulting an attorney about bankruptcy options or other alternatives. Filing for bankruptcy can in some cases put at least a temporary halt to certain types of collection activities.

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