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Education Center » Pay down debt or save? 5 questions to help you decide

Pay down debt or save? 5 questions to help you decide


Adapted from Better Money Habits®

You probably know that carrying too much debt for too long isn’t good for your finances. And you may also know that you should have money put away for emergencies and other important goals. So how do you decide what’s more important—paying down debt or building up your savings? To figure out the best steps for you, consider these five questions.

1. Do you have high-interest debt?

Interest rates on credit cards are often high. That can cost you considerably over time, since credit card interest typically accumulates faster than what you can earn on savings.


The average annual percentage rate, or APR, for credit cards


The average 5-year CD yield

Source:, April 22, 2020.

Source:, April 16, 2020.

Pay it down: If you’re carrying debt with double-digit rates, it may make sense to prioritize paying it off so you can free up future funds to save or pay other debts.

2. Do you have an emergency fund?

An emergency fund provides cash you can draw on in case of:

Unexpected car or home repairs

Medical emergencies

Essential costs like rent and groceries if your income decreases or you lose your income

Emergency fund = at least 3-6 months

Save it up: If you don’t have three to six months’ worth of living expenses set aside for emergencies, consider that goal next. But keep paying at least the minimum on any loans and credit cards. You can take simple steps to jump-start your emergency fund.

3. Are you planning for retirement?

Your retirement account earnings may produce earnings of their own, so the earlier you start to save, the more growth potential you have. Plus, some retirement contributions help you minimize taxes.

Save it up: You can’t borrow for retirement, so consider this goal next. As you build your retirement accounts, you can continue to chip away at debt at the same time.

4. Do you have other debts?

Are you paying off car loans or student loans?


Average student loan debt for class of 2017 graduate

Source: Federal Reserve.

Pay it down: If your rates and terms are reasonable, you may decide to stay the course with your monthly payments. For loans with higher rates, consider bumping up your payments to pay those debts faster. That way you’ll save on total interest paid and have more money to allocate to your goals.

5. What are your other goals or needs?

If your high-rate debt is under control, you have savings in an emergency fund and you are contributing to your retirement, it’s time to consider saving for other things.

Save it up: Depending on your goals, you can save for: A new car, education or a down payment on a home. Once you have those up and running, you can look toward the fun stuff like vacations and other big purchases.

Learn more and take action

  • Get some tips on developing a payment strategy to help you tackle student loan debt.
  • Are you only paying the minimum amount due on your credit card each month? Find out what this truly costs you and how paying just a little more may help.
  • Learn how to plan for the retirement you want.