One of the key tenets when it comes to proper financial management is to assess where your money reaps more profit so you can invest wisely with the best potential return. This kind of thinking actually governs the decision-making process of savvy and informed investors and is one of the reasons why they are successful at what they do. Conversely, many of us who do not understand this dynamic would rather choose to pay off our debts rather than open a UK savings account. But once we dig deeper, it may be extremely useful to realize that savings may just be your best way to help you overcome debt.
In corporate parlance, this strategy is known as debt restructuring and a similar principle is applicable in personal finance. Consider; suppose you owe somebody $500 worth of debt and you come across $300 one month. The helpful question in this scenario is: would you rather pay off the debt outright or would opening a savings account help you solve your debt problems in the long-term?
While it may not seem to be that obvious, you can be assured that savings can help play an essential role in addressing your debt situation. In the given context, one potential solution it to arrange for your debt to be paid in $50 increments over a period of 10 months and then put your $300 into a savings account that generates a yield of 3% per month. While it may not seem like much, the 3% profit can actually help you generate more money over the course of the 10-month payment period. The savings account actually generates $9 worth of profit per month, which amounts to the debtor effectively paying only $41 per month as opposed to paying the full $50.
Of course, one can argue that this is a picture perfect situation that can be influenced by many variables, and yes that is indeed true. Still, it does not take away from the fact that savings today can help generate extra profit that can then be used to pay off one’s debt incrementally. Over the period of a few years, the profit may become substantial enough to eat a huge chunk out of the debt, and that is where one can definitively say that savings can help address your debt situation today.
The best way to take advantage of this is to get in touch with a financial advisor in your local bank. They may be able to propose innovative steps to help you start a savings fund while addressing debt at the same time. Take the time to learn the vagaries and benefits of a sound savings plan and use it to your advantage by allowing it to help curb your debt. It may just be the strategy that you have long sought to help you get out of the financial hole you are currently in, and then onwards to financial freedom.