Explain what sinking funds are and how they can help you pay off debt

YOU’ve heard of checking accounts and savings accounts, but what about sinking funds?

These funds have gained a lot of buzz as a great way to work towards becoming debt-free.

Sunken funds can help you pay off debt


Sunken funds can help you pay off debt

What is a sinking fund?

Similar to how you put money into a savings account, a sinking fund is another way to save.

These accounts are often created with the goal in mind, and for many, it becomes or has no debt.

Usually, these funds are automatically stored to a specific account.

Sunk funds can be used for non-monthly expenses, including car maintenance, vacations, and even Christmas presents.

These accounts are completely separate from savings or emergency funds.

How can sinking funds help you save?

If you create a savings account through a bank and treat it as a sinking fund, you can automatically deposit a certain amount each month.

By automating these transfers or payments, you can stay on track if there’s a specific goal you’re trying to achieve.

For example, if you know you want to go on vacation for $3,000, you can break that down into a specified monthly amount to put into your sinking fund.

That way, when it’s time to pay for your ride in full, the money is already there.

Sunk funds also help you avoid falling into unnecessary debt when unexpected situations arise.

If you have to pay a $500 medical bill, you can do so without using a credit card or withdrawing savings.

Who can use sunk funds?

Anyone can create their own version of a sinking fund.

Individuals can start a specific separate account as a sink fund and hoard a predetermined amount each month to save for future expenses.

Companies can also use sunk funds to pay off debt and bonds.

Instead of having to take completely from revenue to pay off debt, the sinking fund softened the blow.

By using a sinking fund to pay off debt sooner, companies can save money in the long run and avoid facing financial hardship.

Doing this can also give credibility to the company or business and lead to better credit.

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