Should You Pay Off Debt or Put Money Into Savings?

Here’s my answer on this controversial topic!

We all have a different financial journey. You’re making progress toward a better future by looking at your financial problems head-on and doing something about it. That’s amazing. No matter what your goals are, you are on a path to a life liberated from burdensome debt. One of the fascinating things about looking at and actually dealing with your money problems is that suddenly you will begin to see distant, or even immediate possibilities and potential for a much brighter future than you even realized. That can be overwhelming and questions like “how much should I save?” make it harder sometimes to knuckle down and focus on what is right in front of you.

“How much should I save?” and “when should I start?” are common questions that need to be addressed early on. In theory, you can’t save anything, which is why you are in debt. Not always, but often, you may be among those who are stuck in a cyclical pattern of just paying out everything you earn to the debts you’ve accumulated. While there are all kinds of approaches to dealing with this debt and finally getting free, one question unilaterally immerges. “How much of this found money should I save?”

Found Money

Finding money is the key to getting out of debt. Unless you have been saving your money and ignoring your debt, you’ve probably found that saving money is very difficult or even impossible. The very question “how much should I save?” seems ludicrous. It takes looking deep into your financial life and finding ways to cut expenses or even add income in order to begin to dig your way out. It’s in these circumstances when you have come up with that extra cash, that you are able to pay down your debt.

This is also when it’s tempting to put some of that away for the future. This is a real dilemma and it’s not an easy decision to make, especially since the sensation of actually having money feels so new. In order to make the right decision, you need to be very purposeful and self-aware about what you are doing to become debt-free.

Stay Focused on Resolving Your Debt

In some cases, you should avoid the urge to put money aside and stay focused on becoming debt-free. Since we all have different financial challenges to overcome there is no blanket solution for everybody. If you are at a place in your journey where you are constantly having to dive into your savings to bail yourself out, you should consider why that is before contributing to it. It might be like pouring water onto a grease fire (not good).

I share more of my personal experience with this in chapter two of my book, The Spender’s Guide to Debt-Free Living. If you have “emergencies” come up all the time, it may be hurting you to have those available funds in savings. Pouring it all into your debt can stop you from falling back on your cash so easily and throwing your money away. In that case, the answer to the question “how much should I save?” is nothing.

Real Emergencies Happen

Real emergencies are much rarer, but they do happen. It’s important to prepare yourself when you can. So, if you are able to leave your money alone you should set some aside and try to build up a good amount starting with a goal of $1,000 and eventually trying to get 3-6 months worth of income saved. emergencies should not come up all the time, so if you are frequently having to spend out of your savings, there is a different problem that needs to be addressed some other way than with your savings account.

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