Debt vs. Savings: Which Should You Focus on First?

Managing your money can feel overwhelming, especially when you’re deciding whether to tackle debt or grow your savings. This common dilemma can be resolved by finding the right approach for your financial situation.

Why Focus on High-Interest Debt?

High-interest debt, like credit card balances, should take priority. These types of debt grow quickly due to interest rates, costing you more the longer they remain unpaid. Reducing or eliminating these debts first helps you save money over time and reduces financial stress.

Why Savings Matter Too

Building a savings fund is just as important. Having an emergency fund—equivalent to one or two months of essential expenses—acts as a safety net. It can cover unexpected costs, such as medical bills or car repairs, and help you avoid taking on more debt during emergencies.

How to Balance Debt and Savings

Striking a balance is key. Consider dividing your income between the two. For example, allocate a larger portion of your budget to paying down debt while setting aside a smaller amount for savings. This way, you’re tackling high-interest debt aggressively while still making progress on your savings goals.

Use a Budget to Stay on Track

A clear budget can help you allocate your income effectively. Track your expenses to identify areas where you can cut back, such as dining out or unnecessary subscriptions. Redirecting those funds toward debt repayment and savings can significantly impact your financial health.

The Bottom Line

Deciding whether to focus on debt or savings doesn’t have to be all or nothing. Paying off high-interest debt should come first, but starting a small emergency fund ensures you’re prepared for the unexpected. By budgeting and consistently working toward both goals, you’ll build a solid foundation for financial stability. (ASC)