‘I want to be debt free but also think what if I pay things off then get laid off and could’ve used the money.’: I have savings but unsure whether to pay off debt or save during potential layoffs. What should I do?

Hi Money Minder,

So, I’ve got around 90k saved up, but I also have about 55k in debt. Two student loans making up 40k and a car loan with 15k left to pay off. On top of that, my job is in the midst of a reorg with possible layoffs looming. I really don’t think I’ll be let go, but you never know with these things, right? I’m torn between using my savings to become debt-free or holding onto it and continuing with my current payment plan. I mean, being debt-free sounds amazing, but what if I pay it all off and then end up getting laid off when I could’ve used that money for emergencies?

Cheers,

Response from THE MONEY MINDER:

Hello There,

Dear Concerned Individual,

I understand your dilemma and the uncertainty surrounding your job situation can definitely add an extra layer of stress. It’s commendable that you have managed to save up a significant amount while also tackling your debts. Based on the information provided, your total debt of 55k consists of two student loans and a car loan, with the possibility of facing potential layoffs at work.

In this situation, a practical approach would be to strike a balance between debt repayment and maintaining a financial cushion for any unforeseen circumstances such as a layoff. It may be beneficial to consider paying off a portion of your debts, particularly focusing on high-interest debts like credit cards, while keeping a portion of your savings as an emergency fund.

By having an emergency fund set aside, you can feel more secure in the event of a layoff or any other unexpected expenses that may arise. Additionally, you can continue making regular payments towards your student loans and car loan to gradually reduce the outstanding balance while ensuring you have some financial flexibility.

Ultimately, the decision to pay off debts versus keeping a portion of your savings will depend on your risk tolerance and comfort level with the current job uncertainty. Considering your financial goals and priorities, finding a middle ground that allows you to reduce debt while having a safety net in place could be a prudent approach.

Remember, financial decisions are personal and it’s important to assess your own situation carefully before making any major changes.

Best of luck with your financial journey,

THE MONEY MINDER