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Savings Vs Paying Off Debt

Save Or Pay Debts - Which Is Better For You?

Trying to decide whether to save money or pay off your debts? It can be tricky knowing what to do for the best when you are struggling financially.

Like any decision, it helps to take into account the pros and cons of each option. Some people also choose to do both – save and pay off debts at the same time.

So, which is right for you? Here, you’ll learn everything you need to know about savings vs paying off debt.

Should I Save Or Pay Off My Debt?

Knowing whether to save or pay off your debts can be difficult. On the one hand, you want to make sure you are financially okay if something were to happen. However, on the other hand you want to get out of debt as quickly as possible.

So, is it better to focus on paying off your debts first? Or should you try and do both? Some of the main factors to consider when making your decision include:

  • Interest rates/costs
  • Is there a penalty for paying debt off early?
  • Is your debt manageable?

It is important to take into account how much interest you are paying, versus how much interest you are gaining. If you are making less interest off of your savings than you are paying for your debts, you’ll want to focus on the latter. It makes sense to pay off high-interest debts first as this will save you the biggest amount of cash.

Another thing to consider is whether there is a penalty for paying off your debts early. Some lenders will require you to pay a fee to pay off a loan earlier than agreed in the contract. If it is a high fee, you might be better off sticking to paying it off as agreed.

Whether you should focus on saving instead will also depend upon whether your debts are manageable. Are you comfortably making the repayments each month? If not, you’re going to find it hard to save money. In this case, bringing your debts down and making them more manageable should take priority.

In most cases, it is better to pay off debts before you focus on savings. However, there are some exceptions.

What About An Emergency Fund?

While you will want to focus on paying off your debts first, one thing you should save for is an emergency fund. Many experts recommend having three months income saved up in case of emergencies. However, for many people this is unrealistic.

A good goal to aim for is $500 to start. Once you have $500 saved up, you can add to it as and when you can. Everybody should have an emergency fund to tide them over in case something happens. If you can’t afford to save for one, work on bringing your debts down and then start a savings fund.

What Is The Best Way To Handle My Debts?

If you are struggling with your debts, there are some strategies you can use to get them down. Even when you feel like you are drowning in debt, help is available.

Let’s look at some of the best ways to handle debt to get it under control…

Utilize The Snowball Method

When it comes to getting on top of debt, a lot of people find the snowball method highly effective.

With this method, you focus on paying off the smallest debts first. Throw all of the money you have at the debt until it is paid off. Then, use the money you would pay for that debt, to pay off the second smallest debt.

The reason you start with the smallest amount first is because it is easier to pay it off. You’ll see progress quickly, which will spur you on to pay off more of your debts.

Like everything in life, you need to see some progress in order to maintain motivation. The snowball method is therefore one of the best debt management techniques you can use. With that being said, it isn’t necessarily right for everyone.

— Consider The Avalanche Method

An alternative to the snowball method is the avalanche method. This involves paying off the debts with the highest interest rates first.

If you have high-interest debts, it can be difficult to ever get them down. Making the minimum repayment each month will simply pay off the interest, not the debt. So, to get out of debt faster, it would make more sense to target the high-interest loans and repayments that you have.

The thing to consider with this method is whether you can stay motivated while paying off the debt. It will take a lot longer to see any results from this method compared to the snowball technique. Weigh up the pros and cons before deciding which method is right for you.

— Get In Touch With Your Creditors

If you are having trouble making your payments, it’s important to get in touch with your creditors. Most will be understanding provided you let them know what is happening.

You may be able to make more affordable arrangements for a period of time. This will help you to start getting on top of your debts, putting you back in total control of your finances.

— Don’t Ignore It

The worst thing you can do when you are struggling with debt is to ignore it. The situation isn’t going to improve if you pretend it isn’t happening. Instead, it will become much worse.

Always aim to deal with your debts quickly. This will give you peace of mind and ease the stress associated with financial uncertainty.

Tips For Saving

Once you have your debts under control, if you choose to start saving there are a few things to consider. Getting into the habit of saving isn’t always easy. How much should you save and where should you save it?

Some of the best tips to follow when it comes to saving money are:

  • Know what you are saving for and how much you can realistically save
  • Schedule payments to go directly into your savings account
  • Choose a high-interest account

You will need to sit down and work out exactly how much you can save. This means working out your incomings and outgoings. You’ll also want to take your time to compare savings accounts. The higher the interest rate, the more you will get back over time.

A great tip is to schedule payments to go into your savings account directly. Do it as you would when scheduling a bill to be paid. If you view it as a necessity, you’ll find it a lot easier to stick to a savings plan. Just set the payment up like a direct debit and then you’ll be able to forget about it.


Deciding whether to save or pay off debts can be a difficult decision. However, for most people focusing on getting their debts down is the best option. You will often be paying back more in interest on your debt, than what you would earn on the interest from savings.

If you are still struggling to decide which option is right for you, you may find it useful to seek professional help. There are a lot of free advice services (e.g. Credit Counselling Singapore) that can help you to determine which option is right for you.

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