New NFCC Poll Reveals Consumers Feel It’s More Important to Pay Down Debt Than to Save

The National Foundation for Credit Counseling (NFCC) conducts a poll each month on their website.  The August poll asked which was more important – paying down debt or increasing savings.  How would you respond?  Paying down debt was more important to 89%, while increasing savings was more important to only 11%.   This poll was conducted during the month of August with 2,928 responding.

This is not surprising based on the state of the economy and the number of people underemployed, unemployed and concerned about their future.  Some don’t have enough to make ends meet and have acquired lots of debt.  Savings interest rates are very low (.138%), while credit card interest rates are very high (the lowest is 12%).  Looking at the math, because you make next to nothing on savings, shouldn’t you pay off the high interest debt instead?  But don’t you still need to save?

You still need savings for emergencies and future expenses.  Examples of emergencies are home and/or vehicle repairs, job loss, and medical expenses.   Future expenses are education, vehicles, mortgage down payment and retirement. Since the early 2000’s, credit cards have been used as the cushion for emergencies instead of savings, because of the convenience it offers. Prior to the latest recession the savings rate in 2007 ranged from 2 to 2.8%, which was some of the lowest savings rates in history.   In this recent recession, some have had their credit limits decreased or their accounts closed and don’t have that tool to rely on anymore.

According to the U.S. Department of Commerce’s Bureau of Economic Analysis the personal savings rate for July 2011 was 5%.  The savings rate has stayed in the 5% range since 2009.   In prior recessions the savings rate has been higher. In the recession of the 1970’s the savings rate was around 10%, in the 1980’s it ranged  from 9.5% to 12.2% and  in the 1990’s it ranged from 6% to 7%. In this latest recession which began in December 2007, it ranged from 2.6% to 6.5%.  The reason the savings rate was much lower than other previous recessions was because of easy access to credit and low interest loans.

Consumers are continuing to be cautious and are paying down debt. You need to do both – reduce your debt and save.  It isn’t as easy as it sounds.  You need to access your income and expenses and find a way to do it for your future.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Financial, Money & Identity, Saving Money

This post was written by John Ulzheimer