With the elimination of the cap on interest rate charges by our so called Congress, any debt load you’re carrying will not be good for your financial health.

Most Americans with a decent job have to make tough decisions regarding saving more money or paying down more debt.

While saving money is important, paying down debt is probably the wisest choice, especially if you have loans with exorbitant interest rates.

Nowadays your savings or checking account earns little to no interest, while your debt load is draining your earnings through low monthly payments.

While everyone’s financial situation is different, there are similarities when it comes to finding the fine line between saving more money or reducing debt load.

Good Reasons Why You Should Consider Paying Off Debt

After an intense debate among staff members, here are the arguments we thought made sense for those considering paying off debt before accumulating savings.

The Interest Rates You’re Paying

If you take your time and look carefully at your credit card or loan statements, the rate of interest you’re paying will be a shocker to some.

Now you know why banks advertise teaser rates on credit cards to get you to apply. The average interest rate on credit cards as of today December 10, 2014 is about 16%.

Do you know the average interest rate on savings and checking accounts? Just 0.06%, this is less than 1%.

If you have money in the bank earning pittance in interest and you’re paying 16% or more on your borrowed funds, you’ll be financially poorer unless you reduce your debt load with your saved funds.

Do not be fooled by the low monthly payments on your credit card bill, when you add it up yearly it’s a costly burden to bear financially.

The Banks pedaling those credit card loans are the worst form of leeches one can encounter, unless you deal with a loan shark.

The way the payments on credit cards are structured, you’ll be paying forever for that $2,000 balance you have on your Visa card.

Most often, your monthly payment is only based on the interest owed and not the principal.

In a nutshell, what they’re doing is lending you money at an exorbitant interest rate, while they pay almost zero rates on your savings. Now you know why some banks are so profitable.

So from just a pure financial point, if your debt load comes with higher interest rate than you’re getting from your savings or checking account, drain your savings to pay your debt off today.

The financial numbers don’t lie; with less debt you’ll be able to use your money more efficiently.

Less Debt Equals Better Credit Score

A significant part of your FICO score is derived using the amount of debt load you’re presently carrying. Quickly paying off all or just a few credit card balances would do wonders for your credit score.

Just from my personal experience, less debt always results in higher credit score.

Better Rates on Other Loans

With less debt and a higher credit profile, your desire to buy a home or invest in commercial real estate will result in lower interest rates.

If you owe less money and have a high FICO score, most banks would bend over backwards to get your business.

You might even qualify for those credit cards with no charges if you pay-off your balances every month.

This means you get to use the bank’s money for free every month. Most of the wealthy households in America have those types of credit cards.

So paying down your debt would result in higher credit score which then translates to lower interest rates on any future personal loans and mortgages.

Here are Some Pointers in Favor of Saving More of Your Money

After careful consideration, I can understand why most people like some money in the bank while owing large balances on credit cards and other personal loans.

Rainy Day Fund

If you don’t have a rainy day fund, most likely your credit cards are maxed out also. Simply borrowing the funds you need when emergency strikes can make the ordeal twice as hard to deal with.

If you lack a sizeable fund to help in case of a desperate situation, what other options do you have? Have you considered how you would manage if the banks turned-down your new loan application down?

Better to be safe than sorry, put-way some funds from your weekly paycheck and call it your rainy or emergency day fund.

As humans, we all do run into situations that require the use of quick cash. Do not depend on the cash advance provisions of your credit card, unless you’re willing to go into financial bondage well into the future.

Feel Good or Emotional Reasons

From my own personal experience, just looking at your bank balance can create good emotional feelings within you.

Just imagine you checked your checking balance and it shows $120,000, how would you feel? While some will quickly go out shopping thinking they’re rich, most would sleep well at night based on that fact alone.

A good bank balance can be an aphrodisiac in any marriage. While less money in the bank would create more stress and tensions with your mate, trust me on that one.

So just from a feel good perspective, you want some money in your bank account which translates into less stress.

What about Low Interest Loans?

If you have an installment debt or mortgage with low or moderate interest rate, you might be better off just making the required payments, while you save all you can.

Consider mortgage interest payments for instance! Most of the interest you pay on your mortgage is deductible on your taxes. (Check with your tax advisor to see the maximum amounts allowed).

If UNCLE SAM is willing to pick up the tab on your interest payment for your home mortgage, please keep making those monthly payments with ease.

If you have any loans like that, it would be financially stupid for you to aggressively pay it off.

Retirement Contributions

If you work at a job that provides equal contributions to your retirement funds, it will be wise to contribute the maximum amount.

The matching funds can be looked at as free money that’s geared towards your retirement enjoyment.

If you focus on just debt payment and not retirement savings, you might live poorer in your older age.

So if your employer gives you a good reason to save for retirement with equal matching contributions, please try to take advantage of the 401K program while still paying down your debt.

If you’re looking for how to get out of debt and save, we wrote a great article here to help you out. To save or pay off debt should be of equal importance, depending on your financial situation.

If you owe mostly credit card debts with high interest rates, consider paying off the balances if you can afford to.

The question of what debt to pay off first is your decision to make. Better to start paying off the debts with the highest interest rates.

Before deciding if to save money or pay off debt, seat down with a pen and paper and write down the details of what you owe and your bank balances.

Less debt will not only improve your credit score, securing a mortgage or other installment loans would be much easier, and you’ll be in a better position to demand a lower interest rate.