We all know that we’re supposed to be paying down our debt — and doing it aggressively. However, there are situations when stretching your finances each month to make that extra payment might not be the best idea. While you want to meet your obligations whenever possible, and get rid of your debt as fast as you can, it’s not always a wise idea to put every penny toward aggressively paying down your debt. Here are some situations that should make you think twice about paying down your debt :
You’re Uncertain About Your Job
While the worst of the economic downturn appears to be over, there are still those in precarious positions at their jobs. If you are uncertain about your job prospects, and fear being laid off in the next few months, putting every extra penny toward reducing your debt might not be the best idea. Instead, you might be better off building up your emergency fund. You can still work toward debt reduction, but you might slow it down so that you can prepare for something unexpected. Otherwise, you might find yourself with no choice but to turn to debt when you do get laid off, running the credit cards back up.
You’re Paying Down the Wrong Debt
In some cases, you might be making great strides with your student loans or your home mortgage while this is a positive thing, you shouldn’t be aggressively paying down these debts until everything else is paid off. Student loans and mortgages generally have low interest rates — and the interest is tax deductible. Before focusing on building more equity in your home, you need to pay down your higher interest debt. This is debt without tax benefits, such as credit cards, payday loans, or other high interest debt.
You’re Stealing from the Future
You do need to get your debt paid off if you can — and do it quickly. But you should also be preparing for the future. You want to keep making some contributions to your retirement fund while paying down debt. And don’t raid your retirement account to pay off the debt. Sure, you can pay back the loan from your account, and you are paying yourself interest. But if you aren’t careful, you could end up paying penalties and taxes on the amount you use to pay down your debts. On top of that, you can’t replace the money the missing principal would have been making.
You’ll Never Pay it Off
Finally, you need to realize that you might be in way too deep to pay off your debt. While it is better to meet your obligations, sometimes you might need a settlement to reduce the amount you owe, or you may even need to file bankruptcy. This might not be your favorite option, but if you are so far in that no matter how aggressively you try to pay it off, you cant, then it is time for drastic measures. Continuing to try to pay down debt that is honestly too big for you will only result in years of frustration as you do everything you can, only to fail. Honestly evaluate your situation.
Usually, paying down your debt aggressively is a good idea. However, there might be some circumstances in which it is better to take things a little slower, and save the final pay off for another day. Once you are in a better position, you can begin stepping up your efforts.