The age old question of how to allocate available income is best resolved by either paying off pre-existing consumer (credit card, car loans, etc.) debt, and/or investing for the future. Presumably, when we speak of investing the most popular way to accomplish this is through stocks and bonds. But how much to throw at debt, and how much to invest is often under debate. Are there fixed percentages that financially responsible individuals use (e.g., 85:15%, 60:40%, etc.)? Can we just add an extra $100 on top of our minimum monthly payments and live with that? Does investing in asset classes that average a certain percentage of return justify putting our dollars there [e.g., if I can confidently assume a 9% rate of return year-over-year (YOY) but my car loan interest rate is only 6%, I should choose funding that particular asset class]?
All of these questions will be explored, and more, in this article. But first, it’s worthwhile mentioning that no two snowflakes are identical. And thus, not everyone will have the same savings strategy. Although the strategies contained herein may be effective for some, and not others, the basic idea(s) are almost universal. So take what you can from me, and absolutely feel free to tweak according to personal preferences.
Now, let’s go tackle some debt.