Should I save money or pay off debt first?

Before deciding whether to save money or pay off debt first, it’s essential to assess your financial situation
A representative picture of debt. — Canva
A representative picture of debt. — Canva

When it comes to managing your finances, it can be challenging to decide whether to save money or pay off debt first. Here are some tips to help you prioritise your finances.

How to manage finances

Assess your financial situation

Before deciding whether to save money or pay off debt first, it’s essential to assess your financial situation. Start by creating a budget that outlines your income and expenses. This will help you understand how much money you have left over each month after paying your bills.

Pay off high-interest debt first

If you have high-interest debt, such as credit card debt, it’s best to pay it off first. High-interest debt can quickly accumulate, making it difficult to pay off. By paying off high-interest debt first, you can save money on interest charges and reduce your overall debt.

Build an emergency fund

It’s also important to build an emergency fund. An emergency fund is a savings account that you can use to cover unexpected expenses, such as car repairs or medical bills. Experts recommend having at least three to six months’ worth of living expenses in your emergency fund.

Consider your long-term goals

When deciding whether to save money or pay off debt first, it’s essential to consider your long-term goals. If you have long-term financial goals, such as buying a house or saving for retirement, it’s important to start saving as soon as possible. By saving early, you can take advantage of compound interest and grow your savings over time.

Create a plan

Once you have assessed your financial situation, paid off high-interest debt, and built an emergency fund, it’s time to create a plan. Start by setting financial goals and creating a budget that outlines your income and expenses. Then, allocate your money towards your goals, such as paying off debt or saving for retirement.

Deciding whether to save money or pay off debt first can be challenging. However, by assessing your financial situation, paying off high-interest debt, building an emergency fund, considering your long-term goals, and creating a plan, you can take control of your finances and achieve your financial goals. Remember, it’s never too late to start saving or paying off debt. With a little effort and discipline, you can achieve financial freedom.