Debt Payment VS Savings Calculator
Are you trying to decide if you should put your extra income toward paying off debt or if you should put it into your savings account? The calculator below will let you know which option will save you more money in the long-run by comparing the interest you will save by paying off your debt vs. the interest you would earn by contributing to your savings account.
How to Pay Off Debt
If you're beginning to feel a bit overwhelmed by debt and the monthly bills that come with it, there are several useful strategies for paying your bills down.
- Use a Windfall. If you have money in savings, you can use it immediately to pay off one or two accounts. This will free up money from those monthly payments to put toward other debts or back into savings.
- “Snowball” It. List all your debt balances, in order from the smallest balance to the largest. Using your budget worksheet, plan on paying the minimum required payment each month for each balance. Once you’ve completed your budget, see how much money you have left for discretionary spending. Then, apply some or all of that “extra” money toward the account with the smallest balance—on top of that account’s monthly minimum.
- “Avalanche” It. With this strategy, you simply compare interest rates of all your accounts and pay extra on the one with the highest rate first. When that one’s paid off, move onto the balance with the next-highest rate.
Pay Off Debt vs. Saving
Typically, it’s better to pay off debt before you add to your emergency fund or other savings accounts. That’s because many credit cards and other loans carry a high interest, which can cause your balance to grow much quicker than the interest earned on a savings account. However, if you have a credit card or other debt with a very low interest rate, it may make sense to save first. Or, if you have access to a retirement savings plan through your employer, you may want to contribute at least enough to get the maximum employer match—otherwise, you’re essentially turning away free money. Another situation when it might be beneficial to save before paying off debt is if you don’t have an emergency fund. If you’re hit with an unexpected expense and do not have an emergency fund, you could end up adding to your credit card debt.
Importance of Saving Money
Saving money is important because it puts you in a better position to handle unexpected expenses, plan for retirement, and pay for major life expenses like education. Use our Emergency Fund Calculator to see how much you should have set aside for unexpected expenses, and download the Dobot savings app to set and achieve savings goals.
Debt Payment vs. Savings FAQs
Should you consolidate your debt? While managing debt may be stressful, you can simplify payments with debt consolidation options from Fifth Third Bank.
Putting money aside for your child's college education can be difficult during tough financial times. Here are ways to save for school with Fifth Third.
Knowing how to manage debt is an important step of the retirement planning process. Here's what to know about consolidating debt with Fifth Third Bank.
We're here to help: