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Do I pay down my debt or save more money?
Study shows Americans prefer paying down debt

MMI Copywriter

By Kim McGrigg, MMI Community Manager

This article from the National Foundation for Credit Counseling (NFCC) appears on MMI's Blogging For Change. It touches on an important and timely topic: paying down debt versus saving more money – and is there a healthy balance between the two? Read on for some valuable information and opinions on the issue.

According to the August poll hosted on the NFCC website, 89 percent of more than 2,900 respondents value paying down debt over saving money.

People often debate which is more important, to be debt free or to have a robust savings account, and the answer is both. As important as it is to handle debt responsibly, the truth of the matter is that the unplanned emergency is inevitable, and savvy consumers will recognize this and prepare for it.

January 1959 was the first month that the Bureau of Economic Analysis provided savings data.  According to that initial report, the personal savings rate in the United States at that point was 8.3 percent of disposable income, equating to the average person saving approximately one month’s take-home income per year.

History has shown that the rate of savings increases during difficult economic times, as consumers begin to cut back on their purchases.  Correspondingly, savings typically decline during good economic times as evidenced by the rate of savings falling below 1.0 percent before the last recession which began at the end of 2007.  Even though the savings rate has recently climbed to approximately 5 percent, it is far less than the savings in some years past.

Admittedly, it is difficult to save during times of inflation and job loss.  The fact is that each person only has a certain amount of disposable income, and when he or she has to pay more for everyday commodities, it cuts into the amount available for saving, making a bad situation even worse.

Making people feel more comfortable with their lack of savings has been access to credit, with some using credit not only as a convenience, but as a piggy bank.  Credit replaced savings as the family’s safety net, with some arguing that savings was unnecessary since they could charge or borrow their way out of any unplanned event.

Times are different now, and consumers know it, with the new normal for credit shaping up before our eyes.  Access to credit has diminished totally for some, while credit lines have been lowered for others, making reliance on credit as an emergency rescue tool not an option for many.

Further, as the NFCC’s survey reflects, controlling debt has become paramount for consumers, with studies indicating that new purchases are more likely to be paid for with a debit card than credit, thus keeping personal debt at a manageable level and freeing up money for savings.

Consumers appear to have learned their lesson about over-spending.  Now they need to focus on the other side of the equation: saving.  The best use of the money that was previously going to pay off creditors is to begin or build up personal savings in the following five key areas:

  • Rainy day fund - covers the everyday life emergencies such as home or vehicle maintenance, insurance co-pays and deductibles, etc.
  • Income replacement account - sustains you in the event of a job loss, major medical event, divorce, etc.
  •  Down payment for a mortgagea significant down payment will put you in a better buying position, as well as lower the amount you have to borrow
  • Known future expenses – plan in advance for upcoming major expenses such as education, vehicles, vacations, etc.
  • Retirement – start planning today to secure your tomorrow, as even small amounts of money invested over time can make the difference in how you live during your senior years

In bad times, people save out of a fear of tomorrow, and in good times they spend as if there were no tomorrow.  To turn this savings/spending cycle into financial stability, consumers should recognize the unarguable importance of savings and develop a systematic plan to meet their personal savings goals.

The August poll question and results are as follows:

Which is more important to you?

  • Paying down debt=89%
  • Increasing savings=11%

The NFCC’s August Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site ( from August 1 - 31, 2011 and was answered by 2,928 individuals.

Money Management International is a member of the NFCC.  The NFCC is the nation’s largest and longest serving national nonprofit credit counseling organization.  NFCC Members annually help over three million consumers through close to 800 community-based offices nationwide.

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The goal of our highly trained professionals is to arm you with the knowledge necessary to take control of your financial situation. Our online seminars stress the development of skills that can assure long-term success. You will gain the peace of mind that comes from improved spending habits, increased savings, and the wise use of credit. Take the first step toward financial wellness by enrolling in a Web seminar today!

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Hurricanes! Earthquakes! Fires!

Tips on financial survival in a natural disaster



Severe weather and other natural disasters have been a big part of the news lately. From tornadoes, droughts, and hurricanes to wildfires and earthquakes, few regions of the country are untouched.

September is National Preparedness Month, and recent events remind us that it’s a good time to review how prepared we are for a disaster. It’s a time to not only prepare for your physical needs such as food, water, and clothing, but also to formulate a financial readiness plan in case of an emergency.

Consider the following tips when formulating a financial disaster plan:

Protect your financial documents

Keep family records, property deeds, birth certificates, wills, insurance policies, passports, social security cards, immunization records, credit card numbers, car titles, bank account numbers, and three years of tax returns in a safe deposit box. Place each document in a plastic bag that can be sealed to keep out moisture. In addition, consider a fireproof safe for storing your documents at a second site in your home.

Protect your identity

Notify the three credit bureaus (Equifax, Experian, and TransUnion) that you have been affected by a man-made or natural disaster. By placing a fraud alert on your accounts, creditors must contact you before opening any new accounts or making changes to existing accounts. This will help you avoid becoming a victim of identity theft, as crooks seem to thrive on distressed individuals.

Start an emergency fund

Regularly contribute to an emergency fund that can cover at least three to four months of living expenses. This fund should be separate from your savings or investment account. Also, keep extra cash with your emergency kit, which should include a three-day supply of water and food, first-aid kit, can opener, flashlights, radio, and extra batteries.

Make a plan for contact

Your family may not be together when a disaster strikes. It is important to develop a family emergency plan in advance — how you will contact one another, how you will get together, and what you will do in a different location. In addition, make a plan to take care of your pets, family members with a disability, and the elderly. Outline an evacuation route, a meet-up location, and alternative living arrangements while away from your home.

Have adequate insurance coverage

Proper insurance coverage will prove beneficial after an emergency happens. It will cover any property or personal damage. Some important insurance coverage includes: auto, home, life, medical, flood, fire, hurricane, and renters (if you live in an apartment or lease a home). In addition, it’s worth considering specialized medical insurance such as short-term and long-term disability in case you are hurt and cannot work for a specified amount of time.

The key message is don’t wait for an emergency to get prepared. Taking a few simple steps now can help ensure that your family is financially prepared to weather any storm.

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About Money Management International

Money Management International (MMI) is a nonprofit, full-service credit counseling agency, providing confidential financial guidance, financial education, counseling, and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan, and repay debts. Counseling is available by appointment in branch offices and 24 hours a day, 7 days a week by telephone and Internet. Services are available in English or Spanish. To learn more, call
866.530.9869 or visit

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