Should I Save Money or Pay Off My Debt?

Debt is one of the biggest problems facing America today, with millions of American citizens finding themselves trapped within a pit of debt. According to a study published by NerdWallet, the average U.S. household that is currently in debt carries almost $16,000 in credit card debt alone, with an average of $130,922 in total debt. That’s a hefty amount of debt to live under, and it’s essential to begin the process of digging out of this financial predicament. However, it’s hard for some to determine whether they should focus all of their efforts on paying down their accounts or putting money away for the future and any rainy days it might hold.

Not all debt was created the same; for some, holding auto, student, or mortgage loan debt can actually improve their credit score. However, when it comes to credit card debt, it’s essential to pay it off as quickly as possible. Along with the type of debt you’ve accrued and the interest rates you’re forced to pay, there are a bevy of facets to consider when determining whether you should save or pay off your delinquent accounts. Read on and determine which course of action is best for your individual financial situation.

Consider the Interest Your Accounts Accrue

If you’re behind on payments for accounts that are hit with heavy interest charges on a monthly basis, you’re essentially throwing away money each month that you let your debt fester. A large portion of people who are indebted to credit card companies pay high rates of interest each month, sometimes shelling out an extra 20% each month their bill remains unpaid. For some people, a switch to a balance transfer credit card is a good idea, but securing these depends heavily on credit score.

When it comes to interest concerns, it’s generally advisable to pay off debt before saving, for the simple fact that the interest dividends a savings account will accrue is much less significant than the interest you’ll be forced to pay on outstanding debt accounts.

The Necessity of Emergency Savings

Don’t confuse a regular savings account with an emergency savings account. It’s essential to have emergency money socked away for rainy, as the unpredictability of life can leave us in the lurch more often than we’d like. Whether it’s home repair, medical care, or employment problems, it’s important to have at least three to six months of living expenses put away, just in case. If you don’t already have an emergency savings account, create one today.

Do You Take Advantage of Employer Matching?

If you have a 401(k) through your job, make sure you take care of any offer of employer matching. Leaving it on the table means rejecting free money that could greatly help you down the road. You might be hesitant to commit more to your 401(k) as there tends to be a bit of a steep threshold, but nine times out of 10 it’s more than worth the dividends you’ll make from your investment.

If You Owe the Government

If your debt is due to failure to pay taxes to the government, you must begin paying off what you owe immediately. The IRS can seize the money and hard assets such as homes and vehicles from truant taxpayers that don’t respond to notices. If you’re in hot water with the government and need to pay money owed from years prior, make sure you enlist the help of a tax professional to help you get the issue sorted as quickly as possible. Jail time, fines, and loss of personal property are the consequences of ignoring the IRS, and savings should be shoved to the side until you’re paid up.

The Bottom line

The rise in the cost of living has outpaced the growth of the average American’s income for over a decade, making it impossible for some American families to avoid falling into debt. Make a plan, speak with a financial advisor, and determine how you can best start paying off your debts while also putting money away into a savings account. For some, it makes more sense to focus on debt first, while for others, a combination of saving and payments has proven to be the best solution. Consider the abovementioned facets and make a plan to achieve the financial freedom you crave.


Welcome to the Night Helper Blog. The Night Helper Blog was created in 2008. Since then we have been blessed to partner with many well-known Brands like Best Buy, Fisher Price, Toys "R" US., Hasbro, Disney, Teleflora, ClearCorrect, Radio Shack, VTech, KIA Motor, MAZDA and many other great brands. We have three awesome children, plus four adorable very active grandkids. From time to time they too are contributors to the Night Helper Blog. We enjoy reading, listening to music, entertaining, travel, movies, and of course blogging.

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