by Broderick Perkins
DeadlineNews Group
(9/5/2011) - Save or pay off debt?
We should be able to do both, but the tight economy forces you to make
choices and right now, most Americans are more concerned with paying off
debt.
The National Foundation of Consumer Credit (NFCC) says 89 percent of more
than 2,900 respondents value paying down debt over saving money. Only 11
percent said increasing savings was more important than paying off debt.
"People often debate which is more important, to be debt free or to have
a robust savings account, and the answer is both," said Gail
Cunningham, spokesperson for the NFCC.
"As important as it is to handle debt responsibly, the truth of the
matter is that the unplanned emergency is inevitable, and savvy consumers
will recognize this and prepare for it," she added.
If it's possible.
Unfortunately, for many facing unemployment or reduced employment, that's
just not possible. It is difficult to save during times of inflation and job
loss.
Each person only has a certain amount of disposable income, and when he
or she has to pay more for everyday commodities, it cuts into the amount
available for saving.
The rate of savings once increased during difficult economic times, as
consumers begin to cut back on their purchases. Not today.
In January 1959, the first month that the Bureau of Economic Analysis
provided savings data, the personal savings rate in the United States at
that point was 8.3 percent of disposable income, equating to the average
person saving approximately one-month's take-home income per year.
Now, the savings rate now is approximately 5 percent.
It's not just that the economy is so tight. Access to credit makes people
more comfortable with their lack of savings.
"Credit replaced savings as the family's safety net, with some arguing
that savings was unnecessary since they could charge or
borrow their way out of any unplanned event," continued Cunningham.
Times are different now, and consumers know it, with the new normal for
credit shaping up before our eyes. Access to credit has diminished totally
for some, while credit lines have been lowered for others, making reliance
on credit as a rescue tool in an emergency not an option for many.
AS NFCC's survey reveals, controlling debt has become paramount and new
purchases are more likely to be paid for with a debit card instead of a
credit card to keep personal debt at a manageable level and free up money
for savings.
Consumers have learned the lesson about over-spending. Now they need to
focus on saving.
Once creditors are paid off it's time to begin or build up personal
savings in the following five key areas:
• Rainy day fund. This covers the everyday life emergencies
such as home or vehicle maintenance, insurance co-pays and deductibles,
medical emergencies and the like.
• Income replacement account. This sustains you if there's a job
loss or reduced income.
• Mortgage down payment. The more you have down, the better
your negotiating position for a mortgage.
• Known future expenses. Plan in advance for upcoming major
expenses such as education, vehicles, vacations and other known
expenses.
• Retirement. You need to start planning today to secure your
tomorrow. Small amounts invested over time can make the difference in how
you live during your senior years
"In bad times, people save out of a fear of tomorrow, and in good times
they spend as if there were no tomorrow," said Cunningham.
"To turn this savings/spending cycle into financial stability, consumers
should recognize the unarguable importance of savings and develop a systematic plan to meet their
personal savings goals," she added.
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