Question

Jeremy has been out of school for two years, has a good job, and recently got a raise. He is excited about investing and always puts part of his check into savings. Although he has $6500 in debt left to pay, he is making more than the minimum payments and should be debt free in 15 months. Should he continue to save or pay off his debt? Justify your answer
a. Pay bills
b. emergency fund
c. pay off debts
d. debt snowball

Answer 1

Answer:

There is o information available on how much he saves, the interest on savings and the interest cost on debt. But from the look of this question, The most suitable answer is C. pay off debts.

Explanation:

As general rule, you should only consider on investing and retirement planning once you are out of the significant debts (apart from housing debt).

Here it says it may take 15 months for Jeremy to pay off the debt. In my opinion, he can save less these days and put more money into paying off the debt first. Maybe in that way, he'll be able to pay it in, lets say, 10 months?

Moreover, he will have to cut off his daily spending habits to save a bit more extra money to either save or to pay off the loan.

He does not need to stop saving entirely though, my advice is keep saving but put a larger proportion into paying the debt. Like put 70% to pay off the deb and 30% into saving from the excess funds.