Should You Pay Down Debt or Focus on Saving?
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If you carry a lot of high-interest debt, you may feel pressure to become debt-free. Many famous financial experts prioritize eliminating debt payments, and you’ll find plenty of YouTube videos highlighting the detriment of carrying a credit card balance.
Ideally, everyone would have the cash on hand to handle any financial situation that arises. But focusing on paying off debt to the point that you neglect saving for a rainy day can actually make staying financially secure harder.
Paying off debt and saving are both worthy financial goals. Learn how to decide which is the best option for you.
Pay down debt vs. save
When you have high-interest debt and minimal savings, prioritizing your next move may feel overwhelming. Your first priority is making a master list of all your debt. Include each lender’s name, the type of debt, the total amount you owe, your minimum payment amount, due date, and interest rate.
Once you have a list, you can order your debts from lowest to highest balance or from highest to lowest interest rate.
You should also make a list of any savings you have (including retirement and investment accounts) to get a complete picture of your current financial situation.
Pros of paying off debt
Paying off your debt before aggressively building a savings account has several benefits, including:
- You can build a stronger credit score. Reducing your debt will increase your credit score, which can make it easier to qualify for a home loan or car loan in the future. Lower balances on your credit cards equal a lower credit utilization ratio.
- Eliminating debt can reduce stress. Debt, bankruptcy, and foreclosure can be extremely stressful. Freeing up money by eliminating debt can alleviate some of that stress and provide a sense of security.
- A lower debt balance saves you money. Your credit cards and loans charge interest as a percentage of your loan balance. The more debt you pay off, the less interest you’ll pay over time. Paying off loan balances early can save you hundreds or thousands of dollars in interest.
If you have a credit card balance of $5,000 with a 20% interest rate and a minimum payment of $150 per month, it’ll take you just over four years to pay off, and you’ll pay $2,359 in interest.
But if you double your minimum payment and make $300 payments on the same credit card, it’ll take you 20 months to pay off (just under two years), and you’ll pay $907 in interest. That’s a difference of $1,452.
Debt repayment strategies
When you’re paying off a lot of debt, two popular repayment strategies may help you stay on track:
These methods work well if you don’t add to any of the balances you’re paying off. Both options can help you pay off debt faster; you just need to decide which option will motivate you the most.
If you’re struggling to handle multiple monthly payments, consolidating your debt into a single loan with one monthly payment can make debt repayment easier to manage.
Our personal loan calculator can help you get an idea of what your monthly payment amount might be. Just plug your loan amount, interest rate, and repayment term into the fields below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
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Pros of prioritizing saving
Prioritizing saving over paying off debt quickly also has some benefits, including:
- You can take advantage of compound interest. Compound interest accrues on both the principal and any accumulated interest, which can increase your savings substantially over time. Investing in an IRA or 401(k) is a great way to take advantage of compound interest.
- An emergency fund can prevent future debt. Having three to six months’ worth of expenses saved in an emergency fund can ensure you don’t have to charge an unexpected medical bill or car repair on your credit card. Setting up even a small safety net can help protect you in the future.
- You can work toward goals on your financial timeline. Focusing on saving allows you to make progress toward long-term goals, like retirement, so you don’t feel so far behind in the future.
Let’s assume an initial savings balance of $1,000 and a monthly contribution of $150 over three years. Your total investment over three years is $6,400. But with an interest rate of 10% compounded annually, your savings balance at the end of three years would be $7,289. That’s $889 you earned without doing anything except putting your money in an account.
Is it possible to pay off debt and save?
You can pay off debt while building your savings account, but you’ll need to have a plan and you’ll need to be consistent. You can prioritize both by saving $500 in an emergency fund before putting any extra money toward debt.
You should eliminate any toxic debt, like payday loans, as quickly as possible because they’ll only make it more difficult to save or pay off debt. If you have this type of debt, a debt consolidation loan could help eliminate this high-interest debt for a loan with a lower interest rate.
If you’re looking for a debt consolidation loan, we can help you get started. The personal loan companies in the table below compete for your business through Credible. You can request rates from all these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
| Lender | Fixed rates | Loan amounts |
|---|---|---|
 Credible Rating  Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
9.95% – 35.99% APR | $2,000 to $35,000** |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
6.79% – 17.99% APR | $10,000 to $50,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
4.99% – 35.99% APR | $5,000 to $50,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
5.99% – 24.99% APR | $2,500 to $35,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
7.99% – 29.99% APR | $7,500 to $50,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
7.04% – 35.89% APR | $1,000 to $40,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
7.99% – 35.99% APR | $2,000 to $36,500 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
3.49% – 19.99% APR | $5,000 to $100,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
6.99% – 19.99% APR1 | $3,500 to $40,0002 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
18.0% – 35.99% APR | $1,500 to $20,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
5.99% – 24.99% APR | $5,000 to $40,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
5.49% – 17.99% APR | $600 to $50,000 (depending on loan term) |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
7.95% – 35.99% APR | $2,000 to $40,000 |
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||
 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
6.99% – 21.78% APR10 | $5,000 to $100,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
8.93% – 35.93% APR7 | $1,000 to $20,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
5.94% – 35.97% APR | $1,000 to $50,000 |
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 Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. |
4.37% – 35.99% APR4 | $1,000 to $50,0005 |
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| Compare rates from these lenders without affecting your credit score. 100% free!Compare Now |
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| All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms | ||
Setting up a monthly budget is vital when trying to pay off debt and save. Once you have all your monthly expenses listed, see if you can eliminate any expenses you don’t need, like forgotten subscriptions that you no longer use or spending money on takeout multiple days a week. You can split the extra money between savings and paying off debt in any ratio that makes sense for your budget. For example, if you have an additional $200 per month, you can put $150 toward paying off debt and deposit $50 into a savings account.
Every little bit that you can set aside for both goals will help build your financial safety net.
Can a personal loan help you pay down debt?
Consolidating your high-interest debts with a personal loan can make it easier to pay off debt. You’ll only have one monthly payment to keep track of, and you may be able to get a lower interest rate.
Personal loans often have lower interest rates than credit cards, so you could save money on your total debt. Your credit score will affect the type of rates and personal loans you qualify for, though: The higher your score, the better the interest rates you’ll likely get.
A word of caution: Once you’ve used a personal loan to consolidate your debt, don’t fall into the trap of charging up your credit cards again. If you need help managing your debt, consider talking to a credit counselor.
Financial security might feel elusive, but taking time to understand your financial situation can help you figure out how to best move forward with paying down debt and saving. It’s important to pay down debt, and it’s essential to save, but only you can decide how to prioritize using extra funds to best meet your needs.
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