Saving vs Paying off debt

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Transcript

00:00A lot of financial advice tells you to add new habits, but sometimes the smartest move you can

00:05make is actually to eliminate something first. So let's break it down with an example. Say you

00:09have $5,000 in credit card debt at 18% interest and $5,000 sitting in a savings account earning

00:154% interest. After a year, your savings would earn you $200, but the interest on your credit

00:22card would cost you $900. That means you're actually losing $700. It's like trying to

00:27fill a bucket while there's a hole at the bottom. Your saving might grow a little, but your debt is

00:31going to grow way faster. You're going to be out of pocket quicker. What you really want to do is

00:36first to use your savings, any savings that you have right now to pay off that high interest rate

00:40debt first. Once you've paid that off, then you want to redirect the same money that you were using to

00:46pay that off into savings and investments. It might feel counterintuitive because it feels so nice to

00:51watch your savings pot grow, but actually getting rid of high interest rate debt first will put you

00:56ahead way faster.

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