Many people who want to improve their finances don't know whether they should save money or pay off debt. This post breaks it down in easy to follow steps.

Should I Save Money or Pay Off Debt?

If you haven’t weren’t raised with a good understanding of finances, it can feel really overwhelming when you find yourself in a tough financial spot. One of the major questions everyone asks is, “Should I save money or pay off debt?” In this post, we’re going to break down just how you should handle your debt and savings and which one you should tackle first.

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The quick breakdown

Alright, before I dive into all of the details, let me break down for you real quickly what your options are when it comes to either saving money or paying off debt.

  • Save at least $1,000 emergency fund
  • Put at least $200 toward your smallest debt with the Debt Snowball method
  • Replenish your savings when you need to use any funds
  • Automate small amounts to your savings to cover emergencies over $1,000

I’ll cover each of these areas and share a little bit more about why you should consider putting more money toward debt while still boosting your savings a little.

Calculate your debt

The first and most important thing you need to do is look at how much debt you have. This might require some work on your part. A lot of people don’t actually realize just how much debt they have.

Not knowing your debt makes it impossible to create a solid plan for debt payoff.

What is considered debt?

Debt is considered anything that you are making payments on. This goes double for things that you are paying interest on. 

You are in debt if you have things like:

  • Credit card bills
  • Car loan
  • Mortgage
  • Student loans
  • Loans
  • Doctor bills

Anything that you haven’t paid in full and are making payments on falls into the category of debt. 

The only one of these debts that we will not be focusing on is mortgage debt. Out of all of these, a mortgage is the only debt that can prove to be beneficial to you because it will most likely only increase in value and therefore make you a profit. Although there are different opinions on this topic.

Is your credit in trouble?

Having a lot of major debt that you are struggling to pay off could be seriously affecting your credit score. If you think you are in need of credit repair help, grab this free eBook and credit consultation.

Calculating debt

To start calculating your debt, you are going to need to come up with 3 separate numbers:

  1. The total amount owed
  2. Amount of your monthly payment
  3. What interest you owe on each debt

Here is a free printout to help you organize your debt calculations. Debt Calculator or you can use this digital debt calculator.

Consider your current savings

Often times people with a lot of significant debt have already worked to build up safe, secure savings. This is a great idea, but consider that you have $10,000 in savings and a $10,000 outstanding credit card balance.

Continuing to make your monthly payments will cost you $372 per month and (according to this Credit Karma calculation,) almost $3,400 in interest.

Many people who want to improve their finances don't know whether they should save money or pay off debt. This post breaks it down in easy to follow steps.

Using savings to pay off debt

So what if you took that $10,000, paid off your debt, and instead put that $372 minimum into savings like the Savings Builder savings account?

In three years instead of having lost over $3,000, you’ll have made almost $4,000 in compound interest according to Bank Rate’s simple savings calculator.

Get started with a Savings Builder savings account.

Many people who want to improve their finances don't know whether they should save money or pay off debt. This post breaks it down in easy to follow steps.

What if I don’t have any savings?

So maybe you’re saying to yourself, “that’s great, but I don’t even have $100 saved let alone $10,000.” –It’s all good.

If you don’t have savings in place for yourself yet, before you begin paying off any debt the first thing you need to do is build a secure, $1,000 emergency fund savings.

While I love the Savings Builder savings account because it pays you to save, for your $1,000 emergency fund, I recommend keeping this saved at your local bank for easy access during emergencies.

Building an emergency fund

Having an emergency fund in place before you begin a debt payoff plan is crucial.

Let’s face it…something is going to go wrong. Some emergency is going to present itself and you don’t want to be left penniless. You also don’t want to feel so stuck that you turn to a credit card to help you out of the situation.

Get some great ideas on how to build an emergency fund fast.

Pay off debt

So, when you are done building a solid emergency fund, it’s time to tackle debt.

Having debt is like a life sucking pain in the butt. Let’s get down to the basics of why is really stinks:

  • You end up paying more the longer you have it.
  • It takes money away from you every month.
  • It can ruin your credit score.
  • Prevents you from living the life you want.
  • Prevents you from building secure savings.

When it comes to debt payoff, there really is no wrong way to do it. As long as you do it. There are, however, different expert opinions on how to tackle debt the right way.

So what does financial guru, Dave Ramsey recommend?

Debt Snowball How to Video

Nervous about not saving?

Some people are quick to turn away from Dave’s methods because the idea of not saving it too scary. When it comes to this, there are basically 2 schools of thought:

  • The faster you pay off debt, the more money you will have to save/invest
  • Continue putting $200 or more toward your debt each month, and set up a small recurring monthly payment to a savings account. See the best online savings option.

Keep going

During debt payoff or savings, there will no doubt be times of struggle. It’s so important to remember to keep going. Every little bit adds to the big picture.

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Many people who want to improve their finances don't know whether they should save money or pay off debt. This post breaks it down in easy to follow steps.

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  1. This was one of the biggest discussion we had with my.husband when we first married and we opted to paying off debt mostly for the reasons you mentioned. even though having money in saving provide some peace of mind, debt interests are dream killers i tell you. thanks for sharing.

    1. They really are, Denise! Even more important is being able to have those kinds of discussions which is awesome!

  2. I am currently working through paying down some major Student debt! It’s quite the burden and I want it paid off before I am 30! We have a lot to go, but we are working really hard at it!

  3. I’ve tried paying off my debt (no interest) before saving, but it’s just such a big amount that is so demotivating! Now I’m kinda doing both, which is not ideal…until I figure out what to do! My boyfriend made me an excel and it has really helped me see how much money I can pay off and save per month.

  4. Thanks so much for sharing all of this info! My student loan debt is so overwhelming, but you’re right, it is only going to increase as time goes on! The cheetah reference is so true ha! So grateful for the tips!

  5. I actually got my credit card debt sorted out with the help of a debt consolidation company. I spent years feeling unsure of how to resolve it, but thankfully when I went for I picked the right company and got it fixed. Now I have a good balance between saving and paying bills off. It’s a great feeling to have that kind of balance in my life.

  6. Thanks for sharing. I definitely want to build up my savings more before focusing on debt – which is just student loans right now. It’s good to know that’s the best way to go.


  7. It really can be so hard to decide between paying off debt and saving money, this is something that my husband and I discuss a lot. I think Dave Ramsey definitely has some great advice on the subject, my husband and I really enjoy listening to his radio show and we’ve both read his book.

  8. Great post! I know what it’s like to pay off a large amount of debt. My husband and I paid off $70,000 of student loan dept with high interest rates in 2 1/2 years after we were married. It took so much hard work and sacrifice, but I’ve never regretted it. We now are able to save so much because we were so used to living off so little. Life is so much easier when you are dept free!

    1. That is so awesome!!! I’m really hoping for similar results for our family as well!

  9. Gosh such a good question! We kinda did a little of both at the same time honestly. But we really tried to do the snowball effect and paid off my student loans so we could be debt free before my first was born!

    1. That is so great! I’m glad you found something that worked for you!

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