Should You Pay Off Debt or Save Your Money? Here’s the Surprising Truth.

Lamine Zarrad
April 1, 2022
3 mins

In an ideal world, we’d all have zero debt and ample savings accounts. But that’s simply not our financial reality. In fact, less than half of Americans have enough savings to cover their bills and other expenses for three months. And families with credit card debt owe over $6,000 on average. 

It’s a double-edged sword: it’s important to reduce your debt, but if you don’t have savings, unexpected expenses can cause you to fall behind. 

So, should you pay off debt or save money? 

If you have little or no savings, your first goal should be to build an emergency fund. Most experts recommend saving enough to cover three to six months of expenses, but even a small nest egg can help. (Keep making monthly payments on your debt while you save.) 

Once you’ve saved enough to cover minor emergencies, the best next step depends on your personal situation. Understand the benefits of each to make the choice that’s right for you.

The benefits of paying off debt

  • You’ll reduce the amount of interest you pay over time (especially useful for high-interest loans and credit card debt).  
  • Once you pay off your debt, you can give your full attention to your other financial goals.
  • Eliminating monthly debt payments makes it easier to achieve and maintain financial stability. 
  • Paying off your debt reduces financial stress and pressure. 

The benefits of saving money

  • You can make larger down payments on major purchases, which saves money in the long run. 
  • Having substantial savings provides peace of mind and financial stability in times of crisis.  
  • It’s easier to avoid taking on new debt when you can cover the cost of unexpected expenses.
  • The sooner you begin saving, the more you’ll benefit from compounding interest.

So, should I save or pay off debt? 

Saving money and paying off debt are both important. But depending on your financial situation, you may need to focus on one over the other. Ask yourself these questions to decide which balance works best for you. 

How does this impact my financial stability? 

Which is more disruptive to your financial stability – your debt or your lack of savings? The answer to this question will be different for everyone.

If you’re drowning in high-interest loans, it might make sense to pay down these balances first. Carrying debt over the long term isn’t ideal. The longer you owe, the more interest you pay – especially if you’re paying off high-interest credit cards. 

If your debt is relatively low-interest, and you’re on a tight budget, it might make sense to beef up your savings account first. There’s less wiggle room for emergencies when you’re living paycheck to paycheck, and a healthy safety net can protect your financial stability.  

Learn more: What is Personal Finance? How to Budget, Save, and Build Financial Wellness

How does this impact my emotional wellbeing?

Worrying about money can be extremely stressful. It’s valid to consider your mental health when you’re deciding whether you should pay off debt or save money. 

If you’re dodging creditors or constantly worrying about your credit card bill, it may be smart to tackle your debt head on. But if you’re losing sleep worrying about major expenses in your future, it might help to beef up your savings account a bit first. 

How does this impact my future goals?

To understand if you should pay off debt or save, get clear on your financial goals. Do your long-term goals require positive credit? You might want to start paying down your debt sooner or later. Or, will saving money allow you to afford something – like a car or apartment in a central location – that will help you improve your life situation?

Learn more: Why Budgeting Is Important for Building Credit

Does opening a savings account affect your credit score?

Opening a savings account doesn’t affect your credit score directly, but it has important second-hand benefits. With a healthy savings account, you’ll be better prepared for unexpected expenses. This means you’re less likely to fall behind on bills, which can be damaging to your credit score. 

Strategies for paying down debt

There are many strategies that consumers can use to start paying off their debt. Here are some of the best debt payment methods:

Pay more than the minimum to decrease debt

Pay off your debt quicker and save money on interest by making more than the monthly payment. Even a small amount extra can have a big impact over time – just make sure to check whether prepayment fees or penalties apply. 

Pay more than once a month to decrease debt

Making multiple payments can keep your credit card balance from piling up throughout the month. It also may lower your credit utilization ratio – an important factor in your credit score. 

Use the snowball method to decrease debt

Start paying more than the monthly minimum on your lowest-balance debt. Once you pay it off, snowball what you were paying into your next-smallest debt. Slowly work your way up to the most expensive – without ever increasing the total amount you’re paying each month. 

The bills you pay should pay you back 

Should you pay off debt or save money? There’s no simple answer. It depends on your personal situation and financial goals. Fortunately, when it comes to building credit – the choice is easy.

With StellarFi, you can build credit with the bills you pay each month already. Just link your expenses - like your rent, utilities bill, and even your Netflix subscription - and we report your positive repayment history to the three major credit bureaus: Experian®, TransUnion®, and Equifax®.

It really is that simple. Check out StellarFi and set up your account in three minutes or less.  


The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.