In part 3 of the Savings Strategies series, Austin and Bob discuss if couples should put their extra money toward building their savings or paying down debt. Spoiler alert – the answer is “it depends”.

Austin and Bob help couples analyze the many variables that impact this decision and discuss the difference in interest rates vs financial momentum, along with the type of debt you’re carrying.

Key Points and Quotes Highlighted:

  1. Balancing Savings and Debt Repayment: The decision between saving money and paying off debt should be based on individual circumstances. If a person has significant debt and little to no savings, establishing an emergency fund is crucial to avoid further debt. Conversely, if some savings are already in place, additional funds should be used to pay down debt.
  2. Psychological and Financial Benefits of Paying Off Debt: Beyond the financial benefits, paying off debt can provide emotional satisfaction and a sense of financial freedom. This psychological aspect is important as it can motivate individuals to maintain financial discipline and avoid accumulating more debt.
  3. Strategic Debt Management: Different types of debt should be managed differently. For instance, mortgages (on appreciating assets) are generally more favorable than car loans (on depreciating assets). Strategies like the debt snowball method, which focuses on paying off smaller debts first to build momentum, can be effective in managing and reducing overall debt.

“Because money management is 80% behavior and 20% knowledge, the math doesn’t matter to most people.”

“If you keep that debt, regardless of what the interest rate is, and you take whatever you have left to put into savings or investing of some kind, honestly what you’re doing is prolonging both of your goals and dividing your money.”

“It’s hard to look past the numbers to see the big picture and emotional implications. It’s also hard to look past the emotion and see what’s this going to do for us mathematically.”

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