Save or Pay Off Debt: Which is better?

By | June 19, 2019

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Are you torn between paying off your debt and saving money? Both seem equally important, so how do you decide which to do first?

At first glance, debt appears to be more of a threat to our financial well-being. Or are they?

basket of flowers

Many things in life are not set out in black or white. It’s the same with this thorny question – Is it better to pay off debt or save?

At the end of this post, you’ll be able to make good decisions to improve your financial situation.

How To Decide If You Should Save or Pay Off Debt?

To arrive at the best outcome, ask yourself the most important question.

What type of debts do I have? Which debts have the highest penalty?

Do I have high interest debts like credit card debt and hire purchase debt, or a low interest home mortgage of 30 years?

If you haven’t been always paying off your credit card bills in full by the due date, chances are you’ve been paying hefty interest.

In this case, it makes perfect sense for you to get rid of your credit card debt ASAP.

Which Debt to Pay Off First?

According to, the interest rates for credit cards can be as high as a whopping 29.99%

So, you must make it your topmost priority to pay down your credit card as fast as you can.

Listen, with high penalty rates, you’re throwing your money away for NOTHING.

It’s worse than impulse spending. At least you’re getting something for your money, even if you’ve not much use for stuff.

Now that we’re on the same track, you know it’s imperative to pay off your high interest debts fast. But how?

Channel all your energy and resources towards getting rid of high interest debts. Here’s how.

Consolidate Your Debts

One simple way around this is to open a balance transfer credit card.

You consolidate all your credit card debts into one card with a lower interest rate. This buys you time and this is a good short term strategy.

Set Up a Budget

You don’t need a complicated budget.

A simple one is where you total your earnings minus your spending costs for each month over a period of at least 3 months.

This will give you an idea of how much you have left at the end of the month or if you’re in deficit, meaning you are spending more money than you are making.

Whatever it is, be brave and face it head on. You need to know what’s going on.

Find out how you can create a sustainable budget here.

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Budget Apps and Money Tools

There’re many budget apps and money tools that can help your finances on autopilot.

These money tools below will help manage your finances better if you prefer automation.

#1 Trim

Trim acts your very own personal assistant that keeps working all the time.

It works automatically to help you SAVE.

These are some of the things Trim can do:

– Monitors your purchases. It can get your money back if the price drops after you’ve bought.

-Helps cancel old subscriptions

-Negotiates to lower your bills and more.

You can sign up for Trim here.

#2 Mint

Mint is for you if you need help with budgeting.

It’s ideal for those who are starting to budget. It keeps your financial information in one place and suggests how you can budget more efficiently.

You have a mobile app to assist you with tracking your finances.

Another useful feature is that Mint helps you to monitor your credit score for FREE.

#3 Credit Sesame

Credit Sesame is a FREE personal finance tool.

It’s a credit and debt management tool that doesn’t require your credit card.

Credit Sesame helps you manage your personal credit online so that you owe less interest and save more on your mortgage.

You can sign up with Credit Sesame here.

#4 Paribus

Paribus is a free online tool that tracks your purchases AFTER you’ve bought your items.

If there’s a price drop, it’ll get the refund for you from retailers that are part of their program.

Sign up with Paribus here.

#5 Acorns

How does Acorns work?

When you make purchases daily, it rounds up your “spare change” and invests it for you.

I really like it that this nifty little app helps you save and invest at the same time.

When you sign up with Acorns using my link here, you can get a $5 bonus today!

Make More Money Fast

#1 Host a Yard Sale

Start looking for ‘treasures’ at home.
No idea how to start? Get these 10 decluttering tips. Organize a yard sale.

Spring and summer are the best times to get more cash from yard sales. Download my Yard Sale Checklist. It’s designed to simplify the process and make life easier for yourself.

#2 Sell Unwanted Stuff Online

Sell you unwanted items online, in the comfort of home.

Find out these 14 online places you can get more money fast.

Do you know you can earn extra money from your home decor items to clothes, furniture and devices? Check out this machine that pays you cash on the spot.

#3 Take Up Side Hustles

Find out about these 30 side hustles that can make you $1000+ a month. Most of these money making ideas require little specialized skills.

#4 No Spending Till Further Notice

Implement a no spend policy until further notice.

No more buying except for absolute necessities like food, medication etc.

#5 Save on Food and Minimize Eating Out

Food is a big drain on finances. Stop eating out for dinner. Take lunches to work and avoid takeaways.

Use the money saved to pay down your high interest debts.

Never use the saved money for spending on frills like entertainment.

You may ask:

“Why don’t I use my savings for investing instead of paying off my credit card debts, since I’m earning money from my investment portfolio?”

Even if you’ve invested your money in a high growth stock, the annual gain from your stocks won’t beat the 29.99% credit card penalty rate.

When is it better to keep your debt?

On the other hand, if you’re on a low home loan interest rate of 30 years, it makes sense for you to continue with this type of debt.

Some folks think it’s better not to have any type of debt. That is not realistic for most people.

But how many of us have the luxury of paying for a house in full?

Yes, it may be possible for high income earners to save up money fast, but for others with lower incomes, getting a low interest home loan is an acceptable option.

Another way of looking at it is that paying off the mortgage each month forces you to save towards your house.

It’s a ‘forced saving’ kind of strategy.

How to make your house ‘work’ and pay you cash?

Take in boarders or become an AirBnB host to help with your monthly home repayments.

Invest any extra money you make in a high interest savings account.

More importantly, paying off your home loan debt faster in the short term is not going to affect your monthly mortgage repayments very much.

Your lender is not going to lower your repayments by a huge amount anytime soon.

Credit Card Debt and Emergency Funds

What if you need to pay off your credit card debt and build up an emergency fund at the same time?

Not having an emergency fund to cover for unexpected expenses is dangerous.

What happens when you face an emergency situation like a car breakdown, but you’ve no savings to fund it?

You may resort to dipping into your credit card to help pay off unexpected costs.

But this worsens the debt scenario when you’re actually trying to get out of it.

Balance is the Key

The trick is to have a balance.

While you’re paying off the high interest credit card debts, you’ll need to put aside some money for your emergency fund.

If you’ve a large portion of credit card debt, allocate a larger portion of your money to paying off debt and a smaller portion towards your emergency fund.

Open a high yielding savings account for your emergency funds and don’t touch it unless it’s for emergencies.

Use my Life-Changing Money Saving Challenge to start saving without the pain.

It doesn’t demand a huge savings amount, but it’ll help you save money on an ongoing basis.

By the end of the year, you’d have saved $520, but I’m confident you’ll save more than this amount as it’s designed to give you that flexibility to save more.

Subscribe here to get my Money Savings Challenge. As a bonus, you’ll get extra exclusive gifts as well.

Should we reduce our home loan?

Our family faced this question recently.

Come June, our 2-year fixed home loan would expire and we needed to make this important decision.

Our initial strategy was to split our loan into fixed and variable so that we can choose to pay off more with our variable sum with our monthly savings.

To our dismay, the variable rate was in the region of high 5s at this point in time, whereas we could secure a fixed rate at just under 4%.

Mr MMT prefers not to use any of our savings to reduce the amount of home loan, but I disagree.

In the end, we reached a compromise. Some of the home loan would be reduced, but with a smaller sum than I had originally planned.

The reason?

It’s purely psychological.

It gives me greater peace of mind to see a relatively smaller loan amount. Besides, we’ll still continue saving as much as we can.

Looking for creative frugal ways to save money? Get my 20 Frugal Living Tips to Save More Money Everyday.

If you’re hungry for more frugal tips, then my 300 Frugal living Tips will help you save like you’ve never saved before!

My weekly frugal challenges will get you started on a frugal lifestyle step-by-step.

Each week, you’ll get a little frugal challenge to carry out. In this way, you’ll form frugal habits that’ll help you save well.

If you’re looking have a debt free Christmas, use these ways to minimize your spending.

Wrap Up

As you can see, making decisions to save or pay off your debt depends on the types of debt you have.

It’s best to increase both your savings and income. Use the extra money you get to reduce your highest interest debt first, because this way you’ll save the most money.

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Should you save or pay off debt?

Should you pay off debt before saving?


Pay off debt or save.

Should you save or pay off your debts.

Pay off debts or save? How do you decide?

Save or pay off debt? Which comes first?

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