When it comes to managing your money, one of the biggest dilemmas is whether you should pay off debt first or start saving. Both are essential for financial stability, but which one should you prioritize? Let’s break it down with expert advice so you can make the best decision for your situation.

The Case for Paying Off Debt First

Paying off debt, especially high-interest debt like credit cards, can save you hundreds or even thousands of dollars in interest over time. Here’s why experts say it should often come first:

1. High-Interest Debt Costs You More

• Credit cards often carry interest rates of 15-25%, meaning your balance can quickly snowball if you only make minimum payments.
• Example: If you have a $5,000 balance at 20% interest and make only minimum payments, you could pay over $3,000 in interest alone.

2. It Frees Up More Cash in the Future

• The faster you eliminate debt, the more disposable income you’ll have for savings and investments.
• Without debt payments, you can redirect that money to building wealth instead of paying lenders.

3. It Improves Your Credit Score

• Lowering your debt reduces your credit utilization ratio, which is a major factor in your credit score.
• A higher credit score means better interest rates and financial opportunities down the road.

The Case for Saving First

While paying off debt is crucial, some financial experts argue that saving money first is just as important—especially for emergencies.

1. An Emergency Fund Prevents More Debt

• Without savings, any unexpected expense (car repair, medical bill, job loss) could force you back into debt.
• Experts recommend having at least 3-6 months’ worth of expenses in an emergency fund.

2. Some Debt Is Low Interest & Manageable

• Not all debt is bad—mortgages, student loans, and some auto loans often have low interest rates.
• If your debt has an interest rate under 5-6%, it may make more sense to invest or save first.

3. Savings Provide Financial Security

• Knowing you have a financial cushion reduces stress and anxiety.
• Even just $1,000 in an emergency fund can prevent financial disasters.

The Best Strategy: A Balanced Approach

For most people, a hybrid strategy works best:

✅ Step 1: Build a Small Emergency Fund First

• Save at least $1,000 – $2,500 in an emergency fund before aggressively paying off debt.
• This ensures you don’t rely on credit cards when unexpected expenses arise.

✅ Step 2: Focus on High-Interest Debt

• Prioritize paying off credit cards, payday loans, and personal loans with interest rates above 7-8%.
• Use the Debt Snowball Method (paying off smallest debts first) or the Debt Avalanche Method (paying off highest-interest debts first).

✅ Step 3: Increase Savings While Eliminating Debt

• Once high-interest debt is gone, increase savings to 3-6 months of expenses.
• If you have low-interest debt (like student loans), balance paying it off with investing for the future.

Final Verdict: What’s Right for You?

💡 Pay off debt first if:

• Your debt has an interest rate above 7%.
• You feel overwhelmed by monthly payments.
• You want to improve your credit score quickly.

💡 Save first if:

• You have no emergency fund.
• Your debt has a low interest rate (under 5-6%).
• You’re worried about job security or unexpected expenses.

The key? Find the balance that works for you! Start with a small emergency fund, then aggressively pay off high-interest debt before shifting your focus to long-term savings and investing.

What’s Next?

✅ Need help budgeting? Try YNAB or Mint to track your spending.
✅ Looking for a side hustle? Check out this guide on making extra money.
✅ Want to invest while paying off debt? Learn how to start investing with $100.

Which strategy works best for you? Drop a comment below and share your thoughts! 🚀