Is it Better to Pay Off Debt or Save Money First?

One of the most common financial dilemmas that people face is whether they should prioritize paying off debt or saving money first. It’s a question that can cause a lot of anxiety and confusion, especially when you’re already struggling to make ends meet. In this article, we’ll explore this age-old question and provide some insights to help you make an informed decision.

Remember, it’s not one or the other

The first thing to understand is that you don’t have to choose between paying off debt or saving money. You can do both simultaneously. It may not be easy, but it is possible. The key is to assess your financial situation and make a plan that works for you.

Start by taking stock of your debt and your overall financial picture. Make a list of all your debts and their amounts. This will give you a clear understanding of the total debt you need to tackle. Additionally, consider your income, savings, and monthly expenses. These factors will help you determine whether you should focus on saving money or paying off debt.

Start by building your emergency fund

Regardless of your debt situation, building an emergency fund should be your first priority. An emergency fund acts as a safety net in case unexpected expenses or job loss occur. The amount you need in your emergency fund depends on your life situation and comfort level.

Consider factors such as your income, living expenses, and financial responsibilities. If you have dependents or are a one-income household, you’ll need a larger emergency fund. Experts generally recommend having three to six months’ worth of living expenses saved.

Having an emergency fund is crucial because it helps you avoid going further into debt when unexpected expenses arise.

Take advantage of an employer 401(k) match

If your employer offers a 401(k) match, take advantage of it. This is essentially free money and a valuable benefit that you should not overlook. Contribute enough to your 401(k) to receive the full match from your employer. After that, you can allocate more funds towards paying off debt.

Saving for retirement is important, and starting early can make a significant difference in the long run. However, if you have substantial debt, it may be more beneficial to focus on paying that off before increasing your retirement contributions.

Make a plan to pay off your debt

If you decide to prioritize paying off debt, it’s crucial to have a plan in place. Simply making the minimum payments each month won’t make a significant dent in your debt. To create a plan, you need to assess your debts, determine the order in which you want to tackle them, and set a realistic budget.

Tools like can help you organize your debts and create a customized debt payoff plan. Consider whether you want to use the debt snowball method (paying off the smallest debts first) or the debt avalanche method (paying off debts with the highest interest rates first). Both approaches have their merits, so choose the one that aligns with your financial goals.

Once you’ve determined your debt payoff strategy, commit to making regular payments and sticking to your budget. Update your progress regularly and celebrate each milestone along the way. Remember, this is a journey, and every step counts.

Make a commitment not to go back into debt

Paying off debt is a significant accomplishment, but it’s essential to commit to staying debt-free. Avoiding new debt is just as important as paying off existing debt. Evaluate your spending habits, and make a conscious effort to only spend money you actually have.

Consider saving up to make major purchases in cash, rather than relying on loans or credit cards. By adopting a mindset of responsible spending and saving, you can avoid falling back into the cycle of debt.

Once the debt is gone, go all-in on saving

Once you’ve successfully paid off your debt, it’s time to shift your focus towards saving. Build a robust emergency fund that covers at least six months’ worth of expenses. This fund will provide peace of mind and protect you in case of unexpected financial challenges.

With your debt gone and an emergency fund in place, you can allocate more funds towards retirement savings. Take advantage of tax-advantaged accounts like IRAs and 401(k)s to maximize your savings potential. The power of compound interest works best over time, so the sooner you start saving for retirement, the better.


1. Should I prioritize paying off debt or saving money first?

There is no one-size-fits-all answer to this question. It depends on your individual circumstances. A good starting point is to focus on building an emergency fund while making minimum debt payments. Once you have a solid emergency fund, you can adjust your strategy to pay off debt more aggressively while still saving.

2. How much should I have in my emergency fund?

The general recommendation is to save three to six months’ worth of living expenses. However, this amount may vary depending on your financial situation, job stability, and personal comfort level. Assess your needs and create a savings goal that aligns with your circumstances.


The decision between paying off debt or saving money first can be a challenging one. However, it’s important to remember that it doesn’t have to be an either-or situation. By creating a comprehensive plan, you can simultaneously work towards paying off debt and building savings. Start by establishing an emergency fund, take advantage of employer matches for retirement savings, make a debt payoff plan, commit to staying debt-free, and, once debt-free, focus on saving for the future. Remember, everyone’s financial journey is unique, so find a strategy that works best for you.