Better to Build Savings or Pay off Debt

Better to Build Savings or Pay off Debt
  • Opening Intro -

    Have you ever cut a pie into equal pieces with your hands bound together?

    The idea is absurd when everyone knows one hand is needed to steady the pan while the other makes the cuts.


It’s the same way with personal finance. You need to pay off your debt but you also need to save for a rainy day and retirement, but you only have one pot of cash to draw from. It begs the question: which should be your priority – savings or paying off debt?

Financial advice runs the gamut on the issue of savings versus repaying debt with both sides having legitimate reasons for their stance.

  • Advocates of paying off debt first see debt as the elephant in the room when it comes to struggling to save.
  • Those who advise paying yourself, before tackling your bills are concerned about future finances.
  • A third option is to save a small amount as an emergency find and pour more into paying off debt.

While all three suggestions have merit, a different question needs to be answered; why are you in a situation that requires you to choose between two important aspects of personal finance? One theory that doesn’t get much attention puts the horse in front of the cart – too little savings is one reason you end up in credit trouble. Fix the savings end of your finances and you may not be so inclined to borrow because you will have the available funds to pay without going into debt.

Are You Stuck In A Vicious Cycle?

If you don’t have savings to fall back on, you’re more likely to end up in a rut. One misstep follows another. No savings for an emergency that arises, will lead to a need to borrow. Paying off what you needed to borrow will take away from your ability to save. When your budget is stretched too tight, you’re more likely to pay your bills late and incur penalties and rate increased. Until the cycle is broke, efforts in either direction – to save or get out of debt – will be more difficult and take longer to accomplish.

Putting a stop to this unproductive, vicious cycle begins by understanding your particular circumstances and admitting there is a problem. The suggestion to just stop borrowing and pay off your debts may sound too simplistic, but the truth is, that is all that needs to be done. Putting it into action is another story. It will require a plan…commitment… and patience.

Which Should Come First?

While it may be the case that you’re debts are incurring high interest, many financial experts suggest that savings should be established before tackling debt for the simple reason that you’ll have room to breathe and a margin of security to fall back on. You’ll be free from needing to rely on more debt and until the cycle is broken, getting out from under is probably not doable. In addition, building up savings should be a lifetime endeavor begun early to establish the pattern. Just knowing that you have a safety cushion may spur you to dig deeper in finding ways to safe and spend less.

Building savings will help prevent that hopelessness that comes when life feels out of control.  It will give you a stake in maintaining momentum so as to protect what you’ve worked so hard to accumulate. Hopefully, once you’ve learned how to live debt-free, it becomes your standard way of living. A reasonable emergency fund is a minimum of six months of living expenses. Once you’ve accomplished that, it’s time to put your focus on paying off your debt.

What to Expect

Whenever you need to break an old habit to begin a new, healthier one, there’s bound to be an emotional attachment to your current routine, especially if it served to shield you from the reality of the situation. Having realistic expectations of the changes that are bound to happen will help you keep your resolution to fix the problem.

  • Cutting spending will be painful.
  • Feeling accomplished will come when you save more.
  • Quick fix schemes don’t work; odds are you won’t win the lottery.
  • Lowering debt will be rewarded.
  • Changes will affect other areas of life, i.e., reestablish old hobbies or begin new ones, realize what you can do without, find ways to repurpose items, more home cooked meals, etc.

No matter which area you focus your attention on – spending less or saving more – you have to make it your priority. You’ll need to live below your means and put even the smallest sum available to work in accomplishing your goal.  

Noreen Ruth is a regular contributor to and a variety of other financial blogs and websites. She specializes in credit and debt-related issues and enjoys educating consumers about the latest rules and regulations. She has covered topics on debt management, credit card offers, saving money and a variety of other finance topics to help consumers make prudent financial decisions.


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