Save first, or pay off debt?

I hear this debate constantly and, I must admit, I’ve been on both sides of it throughout the years. I started out thinking it made more sense to save first, then pay off debt. After all, if you’re trying to pay off debt, but an emergency comes up that you don’t have the cash to cover, you have to add more debt, which defeats the purpose, right?

In recent years, I’ve come to realize that saving before paying off debt could be counter productive for a number of reasons. First, when you save for emergencies, you’re saving for the “what ifs.” Believe me, I agree that this is important. But there is no timeline for a “what if.” So if you’re saving to prepare for something that may not happen for several years, you could waste a lot of money on interest payments in the meantime.

I say pay off debt first – hit it with everything you’ve got! If you have to add to your debt to cover an emergency, so be it. In the meantime, you’re knocking down the amount of interest you’re paying each month. And who knows? Murphy may wait to visit until all your debt is gone. Let’s hope so!

Another reason to pay off debt first is that you could get caught up in using saving as an excuse not to focus on paying off debt. How much do you need to save, before you feel like you have enough to start paying off debt? In the meantime, are you dipping into your savings for unnecessary expenses? And in the meantime, you’re racking up more interest every day. If you’re ready to pay off debt, focus solely on that and stick to your guns!

When you’re paying off debt, you want to throw every spare penny at it! But I would caution you to make sure you’re truly ready and know your why before you start this process. I’ve seen too many people get gung ho about paying off debt – so gung ho that they use an inheritance, tax refunds and other big lump sums to knock it down. This feels so good in the moment! And it’s so much faster than making just the minimum payments – I remember that feeling! But once it’s paid off, they return to old patterns and go back into debt, sometimes deeper than before. What happened? The habits didn’t change. And now, those big windfalls of money are gone.

I’m elated to say that I am debt free. But it took time, patience and perseverance. The success stories are fun to read, but they’re not always fun to live. There were days I wanted to quit, but my “why” kept me going. The prospect of living a different life – what I saw as a better life – kept me on track. Anyone can do it – and a budget makes it MUCH easier! Budgeting is the easy part! Sometimes the personal choices you have to make, in order to succeed, are hard. But it’s SO worth it!