Saving for Emergency

There is always the lurking danger in doubling payments or making large additional payments especially in respect of mortgages where the common tendency is to pay off the mortgage as early as possible.

This aggression in repayment by the borrower is often done at the cost of ignoring to save anything for the future that can ultimately spell danger as there will be no cash to handle emergency situations. Also by making large extra payments, a time may soon be reached when there will not be enough money to make even the minimum payments each month.

The situation can be so worse as to compel the person to fall back again on high interest rate credit card debts for making both ends meet. Thus unplanned aggression on good or secured debt without being mindful of the necessity to save leads to high cost unsecured debt. Prudent debt management demands keeping some money for emergencies so as not to become victim of high interest unsecured debt trap.

Controlled Repayment

The situation of becoming fully free from debt is more Utopian than real. It would be more practical to think in terms of control and management of debt. Uncontrolled and aggressive repayment though appearing effective in short term causes a great deal of financial damage in the long run if there is no saving made in the meantime to fall back in emergencies.

Such emergencies in life may come in the forms of sudden lay off, serious illness, disability, drop in income, etc. For example, the interest cost of mortgage loan post tax is low enough for one to avoid paying additional amount to this loan account and instead invest that extra dollar in some savings clearly making it more profitable over a long period than paying off the mortgage loan. Thus controlled repayment and not aggression is warranted for repaying mortgage credit.

Must Pay

The unsecured debt like credit cards must be paid off first. Such debts must not be used for repaying secured credits.