How to Use Your Savings to Save Yourself From Debts
So how do we eliminate or reduce debts? For purpose of this discussion, we talk about debts that are concerned with consumers. Studies have shown that savings and investments are vague subjects for many people. This could be the very reason why so many people are in debt nowadays. If you are a college student thinking being in debt is a nonsensical idea, then you better think about your student loan. That itself is a debt you have to settle when you graduate!
Thankfully, we have knowledge from financial experts. They say that reducing these dreadful debts are is possible by using your savings. How is this possible?
When you have the savings or cash reserve, you are able to settle your debts. What kind of debt can be so disastrous, you might ask? Well, the answer is common; credit card with very high interests and car loans. When you expend your savings to save yourself of a debt, you are doing yourself a favour. Even if your savings are gone, at least you have reduced the culprit, debt.
The problem is that even though you have investments and assets that earn you a good return on investment (‘ROI’), chances are the rates are not high enough to cover the interest rates (caused by loans, mortgages, etc.). A simple calculation can be made this way. Most credit card loans are as high as 12%. Can your assets and investments top that 12% every year without fail? Even the most experienced hedge fund managers cannot promise you that.
Many people really think that they are great an investing, and that they can make a fortune at it. Truth to be told, they still have consumer debts that are yet to be settled. In the world of investment, higher rate of return means higher risks most of the time. The question is, are you willing to do this? Statistics have shown very little people succeed this way. Slow and steady is the way to go.
When you do decide to use your savings to cover your loan expenses, always make certain that you have enough cash at hand. Calculate how much cash you must have in order to survive for, say 3 months, 6 months or even a year. Being in a position of having temporary money interruption is always better than not having money at all permanently. You should also know that when you use your savings to pay credit card bills, the card balance can go back up in a financial pinch.