Should saving still be a priority if I have debt?

Which should you do first: build your emergency savings fund or pay down debt?

Right now…


Some of the reasons for these include:

  • Rising costs of living
  • High levels of debt, often at high interest rates
  • Lack of financial education
  • Lack of budget or financial plan


The answer to prioritizing your emergency savings or paying down debt first isn’t as simple as just choosing one or the other. There are a number of factors that need to be considered when figuring out what works best for you at this moment. 

The general rule of thumb is that you want to be doing both, but that’s hard for many Americans considering the above stats. Especially if your debt feels enormous. Putting money away into an emergency savings fund when your credit continues to plummet and debt racks even higher can cause some major headaches and stress.

So, where should you start?


First, assess your specific situation

Take a look at your

  • Job security
  • Current emergency savings
  • Type of debt you currently hold
  • Future-looking plans (expected or unexpected)
  • Benefits through your employer

Job Security

Do you feel confident in your job and where you are? If you don’t, then you may want to prioritize your emergency savings fund first. If you were to aggressively work on paying down your debt and then you lost your job, you may end up in higher debt with more aggressive interest rates…

Current Emergency Savings

Ideally, there’s some science behind saying that you want to have about 3-6 months worth of living expenses saved in your emergency savings fund. So, add up your rent/mortgage, utilities and other household expenses, car payments, gas, groceries and anything else that you pay for to live each month. Multiply that by 3 and that’s the minimum amount you want saved in your emergency savings fund. Do you have that now? 

Type of Debt You Currently Hold

Not all debt is created equal. Some debts have devastatingly high interest rates—such as payday, car title, and pawnshop loans, which can have an APR well above 100% (sometimes even above 300%!). This type of debt should be prioritized over your emergency savings fund. Why? Because these types of loans are predatory and usually lead people into significantly deeper debt. What was once a $200 loan could easily become a $400 or $600 loan… 

Now, you may be saying to yourself that your emergency savings fund is not enough to cover 3 months of living AND you have some high-interest debt… First, don’t stress yet. You are not alone. Start by focusing on the predatory loans and paying those off before you worry about your emergency savings. Those loans will likely always have a spot in your thoughts until you can pay them down so prioritize those first, so you can then prioritize your future.

Future-Looking Plans (Expected or Unexpected)

You can’t predict the future so we don’t expect you to know what’s going to break or need fixing, but take an inventory of your home, appliances, roof, car, children, etc. How old are some of the items in your home? Has global warming affected your area? Are there any items your children will need in the near future for school and/or sports or activities? Start assessing now to get a better feel for what to expect in the near future. Turn some potential unexpected items into expected and planned for occasions. This will help you understand what your emergency savings should look like…

Benefits Through Your Employer

Employee benefits have gotten exponentially better over the last few years. Employers now offer more benefits than just healthcare and dental. Are there any programs that can provide more financial stability in the form of payroll deducted loans, insurance plans, emergency savings programs or rewards programs? These can be a lifesaver and you know they’re trusted by your organization so you can trust them too. 


Second, prioritize based on your needs

So, when should you save first? From a basic perspective, if you have:

  • Debt with a very low interest rate
  • Access to an employer 401(k) match program
  • No emergency savings


And, when should you pay down debt first? If you have:

  • Debt with a high interest rate
  • At least 3-6 months in your savings account
  • Confident job security


Based on the above, what would you do?


As a reminder, TrueConnect offers many financial wellness services listed above

  • Payroll deducted employee loans (no credit check option)
  • Emergency savings plan
  • Rewards program
  • Financial and credit counseling

If you’re interested in learning more about TrueConnect, our no-cost employer-sponsored loan program that does not require a credit score*, share this ondemand demo with your benefits director.




*Approval if you meet identification criteria

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