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Should I Save Money or Pay Off Debt First?

What should be your financial priority?

Tijana Simic/Shutterstock

If you’re someone wanting to learn the best ways to manage your money, you might run into some confusing and conflicting advice out there. One of the best ways to combat anxiety when it comes to money is to prioritize your goals. Many financial experts emphasize the importance of saving money for the future, but is that more important than paying off debt?

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Paying off your debt is important — but so is having emergency savings. Determining what you should prioritize depends on the kind of debt you have.

If you have high-interest debt such as payday loans, credit cards with interest rates higher than 15%, car title loans or rent-to-own payments, you should focus on paying those down first. Credit card rates and other high-interest rates are often higher than savings interest rates, so you will end up spending more money on debt interest than you would earn putting that money in a savings account.

However, if you have debt with a low-interest rate or a fixed-interest rate, such as student loans, auto loans, or credit cards with interest rates of 15% or lower, it would be more beneficial to put money into cash reserves and retirement savings. Having emergency funds can prevent you from falling into more debt should you face unexpected expenses. Experts recommend setting aside enough emergency savings to cover three to six months’ worth of expenses.


Once you’ve established enough emergency funds, your best bet is to then use a hybrid approach with your budget, allocating some money to your debt and some to savings. Saving and paying down debt at the same time will give you more peace of mind, even if you might be paying more interest than you should. This strategy is just one way you can help manage your money and manage your financial anxiety.