How to know if you should Pay off Debt or Save?

So you´re stuck on what to do… pay off debt or save?

Asking this question means you´re serious about your finances! 🥳

I´m not a financial advisor but my husband and I managed to pay off over $300k in debt. It´s doable!

In this article we´ll look at both options in detail and what we did to build a Net Worth of over $900k

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Starting with the End in Mind

We got serious about our finances about four years ago when we decided we were sick of corporate life!

Sound familiar? We became determined to improve our finances so we could get the hell out of there!

Many times over the last four years we´ve grappled with this very question, should we pay off debt or save / invest?

We´ve all done it… worrying about if we´re making the right decision, until one day I realized…

Whether you pay off debt or save or invest it ALL INCREASES your Net Worth!

So the first thing for you to know is you´re deciding to do “this awesome thing” or “this other awesome thing“.

Good for you!

Before you get your head in a spin remember, both will improve your situation.

As long as you´re being responsible and keeping up with minimum payments beyond that the choice comes down to: which plan are you more likely to stick with?

Personally, we decided on a combination of both, to pay off debt and save at the same time.

Want to know what really pushed up our Net Worth to over $900,000 in just four years?

The answer was the combination of:

But you said I should do what works best for me? Absolutely!

So we´re going to go into detail for both options but first..

Some Basics First


Mimimum payments

Saving might appeal to you more than paying off debt.

If this is you I can totally relate, i´m the same! Saving is way more motivating to me than paying down debt.

However you don´t want to go so gung-ho on saving you forgo making your minimum payments on your debt.

This will wreak havoc on your credit score. Big no no!

Emergency Fund

You do not want to pay off that debt only to then end up with even more after something unexpected happens!

Even though I´m the queen of side hustling, it doesn´t always pay enough to cover everything.

We can all agree there are some things you cannot plan for, like losing your job or having an emergency car repair.

So you need to work smart not just hard, pay down debt, but also pay attention to creating an emergency fund so if something unexpected happens, you can pay for it without having to borrow or use credit cards.

How much should your emergency fund be?

Well that´s totally up to you. Lately I´ve found myself gravitating more towards 1 whole year of living expenses.

Even though it depends on your financial situation, I suggest at least 3 months pay.

Benefits of Paying off Debt before Saving

The Maths

Ok, so looking at it from a purely mathematical approach it´s probably going to do you better to pay off your debt first.


Because the interest rates on your debt are probably higher than what you´d gain if you invested the money instead.

Let´s say you have some credit card debt with an interest rate of 15%.

For it to be worth putting your money somewhere else you would have to beat that 15%.

And oh boy, you´d better believe that any investment that promises a return on investment consistently higher than 15% is going to be very high risk.

By choosing to pay off the debt you´re guaranteed to pay 15% less in interest!

Is it always better to pay down debt first?


Maybe you´re “lucky” to be carrying some form of debt with a very low interest rate.

We have a small mortgage on an investment property with an interest rate of less than 2%. I doubt we´ll ever make extra payments into it.

It just makes more sense for us to put any “extra” cash into the stock market where we can a higher return.

The average ROI in the stock market is around 8-10% over the long haul.

The Human Factor

Let´s face it, debt is stressful.

Maths or no maths knowing you´re on the path to freedom is hugely comforting. Even just starting to pay down debt can feel like a massive weight off your shoulders.

How do you deal with having money floating around? Is your first thought to spend it?

If you know your weakness is frivolous spending sending your extra cash straight to debt every month might be best options. Sometimes we need to save ourselves from ourselves right?

If you need help budgeting follow this super simple method to get started.

I have multiple debts, where do I start?

Perhaps unsurprisingly there are two schools of thought here.

Once again, it depends on which one sits better with you and motivates you more to keep going.

First options: Go for the small wins

List all your debts from smallest to biggest and start throwing everything you have at the smallest debt.

It´s motivating and can help keep you focused on the end goal to get some quick wins.

Second option: Pay off the highest interest rate loan first

This one makes more sense if we´re just looking at the numbers, the sooner you pay off the debt with the highest interest rate, the better you´ll be financially.

If you pay off your debt in order of higher interest rate first you´ll get out of debt faster.

What works best for you personally?

The one you´re going to stick to!

I can´t say it enough! Personal Finance is called that for a reason, it´s personal.


Benefits of Saving before Paying off Debt

The pure maths of paying off debt vs saving doesn´t take into consideration a couple of important factors. This isn´t just a numbers game!

Opportunity Cost

There is an opportunity cost to sending your cash to debt instead of having access to it.

When the pandemic crashed the stock market we had money available that we could invest when the market was at it´s lowest we´d ever seen.

This super charged our Net Worth and wouldn´t have been possible if we had put all our extra cash to debt.

Advantages of employer matched funds

Do you have access to an employer matched retirement fund? That´s free money you don´t want to leave on the table!

If your company matches your contributions to a 401(k) plan, you can increase your retirement savings by hundreds of thousands of dollars over time.


If you´re more motivated by saving and investing you might move faster by doing what keeps the spark alive.

Personally I feel comfortable with low interest debt.

I´m more interesting in real estate opportunities, investing in the stock market and other forms on passive income.

If it hadn´t been for this approach we wouldn´t have made such fast progress.

Keeping up with the Joneses


Fomo is a b*tch when it comes to building wealth.

Don´t you hate it when everyone around you is buying new clothes and going on vacation when you´re trying to be good with money?

It can be tempting to try to keep up. You feel left out. Might want to prove yourself.

But do you know what´s so cool?

That feeling becomes increasingly easy to deal with when you have a bank account full of cash.

You could spend the money. You have the money. But you choose not to.

Because you´re a Money Boss.

The Hybrid Approach

You guessed it…for most people the sweet spot is a combination of the two.

Cover your bases

  • Get an Emergency Fund in place ASAP
  • Start attacking your highest interest rate debt
  • Don´t leave any free money on the table

After that?

Whatever feels right for you.

What works for other people might not work for you, but you have to find a balance that does.

So what do you think is best for you? Pay off debt or save or the hybrid approach? Let me know in the comments below!


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