Should You Save Money, or Pay Down Debt?

Jan 12, 2015
Author: Scott Hanson


With the sluggish economic recovery, after a few years of fiscal belt tightening, many Americans are again taking on credit card debt. Obviously, debt is almost always a bad thing. I say “almost” because it’s tough to argue with someone who is taking on debt to start a viable business. But debt in the form of credit card liabilities (and other unsecured loans) is something else entirely. It’s not merely a huge stressor it limits freedom and can even rob you of professional opportunity.

But what about the other side of the personal-finance coin: What about saving?

Even though I almost always find that, if managed correctly, most budgets can be maximized to address both concerns (saving and paying down debt), for the sake of argument, let’s assume you have no savings, and lots of debt, and your income is such that you absolutely have to make a choice between the two (putting money into savings, or paying off your credit cards).

What should you do?

We live in a world where cash is king. You need it for emergencies and you need it for day-to-day expenses. Debt is an insatiable monster—that compound interest is burying you deeper by the day—but I firmly believe that before you start to get serious about paying down debt you need to make certain you have something in reserve.

So don’t be one of those people who thinks, “I’ll wait until later (next month, next quarter, next year) to start saving.” It’s an unfortunate quirk we humans have that when it comes to saving, many of us believe in the concept of infinite tomorrows. But it’s a harsh reality that people who continue to think that way will not only never accumulate wealth, they’ll likely never get out of debt and, worst of all, they may suffer catastrophically (repossessions, bankruptcy or even poverty) when an emergency arises.

As if the fear of homelessness isn’t motivation enough, you’ve got to consider retirement. Even if you are one of those lucky few people who never has a health issue, never loses a job, and never has the engine from a passing 747 fall through their ceiling, sooner or later, the end of your working life will arrive, and you’re going to have to make it on the assets you’ve accrued.

If you think I’m trying to worry you, I am. I want to motivate you to start saving today. While debt is a problem that won’t go away without a plan of action (and a lot of discipline), putting money in the bank will actually lessen your debt-related stress level, and you may find that by paying yourself, each and every paycheck, in little or no time you are actually developing the habits you need that help you spend less, save more, and pay off your obligations.

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