Saving Money Vs. Paying Off Debt: The Personal Finance Conundrum

Saving Money Vs. Paying Off Debt: The Personal Finance Conundrum

By Todd Kunsman  Saving Money  Dec-08-2023 Invested Wallet

Saving money vs. paying off debt might be one of the most common personal finance debates. Least, I think it is and continues to find people on different sides.

For those just getting started and trying to figure out your financial path, it can be confusing with what to do or where to focus your time.

A few years back, I also ran into this dilemma. I researched, ran numbers, but still was truly indecisive as to what would take priority.

And you’ll see many experts choose one over the other. You’ll also read stories of others in the media or bloggers who chose one path over the other too.

For me, saving money vs. paying off debt can be a finance conundrum to those just getting started.

Saving Money Vs. Paying Off Debt

If you look at the math, see the interest on your debt, you’d generally lean towards paying off debt has your main goal. Right?

But pending your financial goals and current situation, it’s not always as simple as that.

In 2014 as a personal finance newb, I was looking at some student loan debt, car debt, credit card debt, but also had very little save and not much in retirement either.

After searching what I wanted to do and reading, I still found myself arguing internally of which is better: saving money or paying off debt.

The research explained the math and gave some great life examples. But even with that information, I still could not make a definite decision.

Chalk it up indecisiveness or financial ignorance still, but I was afraid I’d make the wrong decision if I went down one specific path over the other.

This is why I’m calling this a debate, a finance conundrum, or a confusing and difficult problem to solve.

Hopefully, you aren’t thinking I’m being over dramatic. You may even be yelling,

“C’mon look at the data and math of your situation!”

For me specifically at the time, this was a battle regardless. A bit further down, I’ll share my choice and why.

When Should You Choose Saving Before Paying Off Debt?

20% of Americans don’t save any of their annual income at all and even those who do save aren’t putting away a lot. (CNBC)

One of the top reasons to prioritize saving money before paying off debt is to build an emergency fund.  

This can be important if you have little to nothing saved as you need some buffer for emergencies or other unexpected expenses. Plus, it helps relieve you of some money stress.

Also, if you’re somewhat lucky with your current debt, the interest rates on those loans might be pretty low. If you aren’t getting wrecked by the rates, socking this money away first until you have six months or so of expenses saved might be a great choice.

TO READ MORE:  https://investedwallet.com/saving-money-vs-paying-off-debt/