How to Save Money and Pay Off Debt | theSkimm
Saving and Paying off Debt ImagetheSkimm

The Story

Life’s full of choices. Red or white. Cancel plans or go out. Save or pay off debt. Knowing which move to make and when is key. Hint: if it’s a white wine kind of night, Chardonnay pairs best with brie.

Can we go back to the saving vs. debt thing?

Sure. They’re both top money goals, so deciding which to do first can be confusing. Having savings in the bank means you won’t get totally thrown by an unexpected expense. But debt is like quicksand. Once you’re in, it’s hard to get out. And the longer you wait to pay it off, the more you spend on interest. Which is why a lot of people end up throwing random, small amounts toward both goals. And not making much progress on either.

That’s also because I’m not made of money.

Yeah, there’s that. There’s only so much to go around each month after paying for everything else you need. Experts usually recommend using 20% of your paycheck for goals like saving and paying down debt. If that’s a stretch, spend some QT with your budget and figure out what’s more realistic right now.

Then how do you decide how to split it up?

First things first. You have to pay the minimums on your debt each month. That’s a given. After that, if you haven’t saved anything yet, put every dollar you can into an emergency fund. Because if you get a bad financial surprise while you’re paying off debt, and you don’t have a safety net, you’ll probably have to rack up new debt to cover it. Like any on-again, off-again relationship, that’s a good way to get stuck in a bad cycle. Hit ‘pause’ once you’ve saved $1,000. That’s probably not the full three to six months’ worth of take-home pay experts recommend having in your emergency fund. But it’s usually enough to cover an insurance deductible or medical bill. Making it a good first goal.

Okay, then what?

Depends on your debt. If your interest rate is in the double digits, experts usually recommend spending most or all of your ‘goals’ budget on paying off that debt. After you’re done, switch back to saving. Pro-tip: Look up balance-transfer deals to save money on interest. Some credit card companies offer low or no interest in exchange for opening a new account and moving your balance over. But read the fine print. There are usually strings attached. Like that new interest rate expiring at some point and you getting charged a LOT of interest on the leftover balance. So do the math and make sure the odds of paying off your debt by the deadline are in your favor.

What about student loans and mortgages?

These don’t usually come with high interest rates. So paying off this debt is less of a fire drill. And you can stick with saving until you hit your emergency fund goal. That’s really important if you own a home. Roofs need repairing. Pipes burst. Water heaters leak. Those things cost a lot. Being prepared to pay for them can help you avoid a serious SOS moment.


Saving and paying off debt both seem like they deserve the top spot on your to-do list. That’s a recipe for getting nothing done. You don’t have to check them both off tomorrow. But coming up with a step-by-step plan — based on your budget, current savings balance, and type of debt — can help you get there eventually. Done and done.

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