Save Or Pay Off Debt? The Secret To Balancing Your Finances

By Aaron Sarentino Reviewed by Nima Vahdat Updated Aug 23, 2023
Save Or Pay Off Debt? The Secret To Balancing Your Finances

“Should I save or pay off debt?” is a question that millions of Americans are asking themselves, and we have the answer.

If I were to offer you $10,000 today, and the only condition for you to receive that money was to save it or pay off debt with it, which would you choose? For some, the answer would be obvious. But for others, they would have to take several factors into consideration. 


  • Finding the right balance between saving money and paying off debt is a common challenge for many individuals, but it doesn’t have to be. 
  • It is an important decision that requires careful consideration of your financial situation and priorities, which debt elimination strategies and money saving tactics to use, and determining your short term and long term financial goals.
  • Why a customized approach can be your best bet, and how to get started today…

According to the Federal Reserve, total household debt for Americans surpassed $17 trillion in spring of 2023. There’s no doubt that most Americans could benefit from saving and paying off debt. 

Let’s explore the benefits of saving, the advantages of paying off debt, and how to strike a balance that works best for your financial goals.

Save or Pay Off Debt?

When faced with the decision to save or pay off debt, it’s crucial to understand that there is no one-size-fits-all answer. 

The right approach for you will ultimately depend on several factors, such as the amount of your existing debt, the interest rates involved, and your financial goals along with how much money you’ve already saved to achieve those goals. 

Striking the right balance is essential for long-term financial success.

Calculating The Opportunity Cost

To determine the best approach, it’s important to consider the opportunity cost of each decision… especially if you are choosing to exclusively save or pay off debt with any extra funds you may have at your disposal.  

A simple way to do this is to evaluate the potential returns on savings compared to the interest rates on your debt. 

If you already have some savings and the interest rates on your debt are higher than potential savings returns, then it may be wise to prioritize paying off debt, particularly if you have a high debt balance on your credit cards or unsecured loans. 

Clear Your High-Interest Debt First

Paying down high-interest debt should be a top priority, especially if you have over $10,000 or more that you owe. 

High-interest debt, such as credit card debt or high-interest personal loans, can quickly accumulate and become a financial burden. In fact, if you’re only making minimum payments on your high-interest debts, then it becomes imperative that you focus on reducing them. 

By tackling high-interest debt first, you can save a significant amount of money in interest payments over time.

Building an Emergency Fund

Before focusing on debt reduction, especially if you don’t carry much or any high-interest debt, it is often advisable to establish an emergency fund as part of your monthly budget. An emergency fund acts as a financial safety net, providing funds to cover unexpected expenses. 

Experts generally recommend saving three to six months’ worth of take-home pay. This ensures that you have a cushion to fall back on during challenging times and reduces the likelihood of accumulating more debt.

Access to Cash: Emergency Savings versus Debt

When deciding between emergency savings and debt repayment, it’s important to consider the accessibility of your money. After all, if you’re using all of your extra funds to pay off debt, then if an emergency occurs and you need money, you’ll likely have to pay for it with a credit card, and much of your diligent debt repayment will have gone to waste! 

While paying off certain debts may limit your cash flow, having easy access to emergency funds is vital. That’s why we recommend you evaluate your financial situation and prioritize having readily available funds to cover unexpected expenses.

How Much to Save in an Emergency Fund

Determining the appropriate amount to save in an emergency fund requires careful consideration. Experts suggest saving three to six months’ worth of essential living expenses. 

Start by calculating your nonnegotiable monthly expenses, such as: housing, insurance, groceries, utility bills, and transportation costs. Then, take 20% of that number and add it to the total as an extra buffer. 

Multiply that combined amount by the number of months you want to save for. This provides a target savings goal to strive for.

Paying Off Debt: Prioritizing and Strategies

When it comes to paying off debt, prioritization is key. As mentioned earlier, begin by focusing on high-cost debt without collateral, such as credit card debt or high-interest personal loans. 

Also, clearing overdue debts should also be a priority, as they can lead to negative consequences like late fees and damage to your credit score. 

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you consider seeking debt relief or negotiating a debt settlement and a payment plan that suits your budget.

By taking these steps, you can make significant progress toward becoming debt-free.

Saving Tactics: Start Small and Think Long-Term

If your goal is to save money, it’s important to start small if necessary. Even saving a modest amount each month is better than saving nothing at all. 

Begin by establishing an emergency fund to provide a financial safety net. Once your emergency fund is in place, redirect your savings toward retirement accounts such as an IRA. 

And be sure to take advantage of any employer matching contributions in a 401(k) and aim to contribute a percentage of your income that aligns with your long-term retirement goals.

Find the Right Balance Where You Can Both Save and Pay Off Debt

Striking the right balance between saving and paying off debt is crucial for your financial well-being. And we encourage you to find a good balance based on your unique financial situation, goals, and comfort level. 

Some individuals may choose to focus more on debt repayment initially, while others may prioritize saving. Consider adjusting your savings rate over time as your financial situation evolves. 

But whatever you choose, make sure you don’t delay… and take action today!

The Bottom Line: Customize Your Approach

Ultimately, the decision to save or pay off debt should be based on your individual circumstances and financial goals. A customized approach that balances the need for an emergency fund with the advantages of debt repayment is essential. 

We encourage you to seek guidance from certified Debt Specialists, such as those at Americor, who can provide personalized advice tailored to your specific needs.

Finding the right balance between saving and paying off debt is a personal decision that requires careful consideration. By understanding the benefits of saving, the advantages of paying off debt, and how to strike a balance between the two, you can make informed financial choices. 

Remember, the goal is to achieve long-term financial stability and work towards a debt-free future!

And if you want to be debt-free even faster… and want to be able to save more of your hard-earned income, Americor can help you.

For more information about Americor’s debt relief services, contact us today to see how we can help you pay off unmanageable debt and get on the fast-track to becoming completely debt-free!


Aaron Sarentino

Aaron oversees executive, administrative and management functions for the firm. Aaron has a Bachelors in Business Administration from Pepperdine University. He is responsible for helping customers at every stage of the debt settlement process and focused on building loyalty to ensure long-term client retention by addressing customer issues. Aaron plays a pivotal role in the upliftment of the Americor team to ensure the best possible customer experience for clients.