Pay Off Debt or Grow your Savings? Which is most important, first?

by Redeeming Riches on December 15, 2014

Pay off debt or grow your savings?  Which is most important, first?

When the question came up about whether it is better to pay off debt or save, I decided to consult with some experts to find out what they say. Everyone has their own ideas about what should be done, however, what are the experts putting out there as the best approach.

Financial planning is generally about preparing for the future. It takes into account earning, spending, saving and paying off debt. Giving has been added as a component in financial planning because of the energy of contribution.  Attention is given to the return that comes from any level of giving, whether it is time and/or money.


Most experts use age as the first level of determining a strategy when assessing what is right for any financial plan.  The criteria then takes into account the amount of debt there is because devising a debt reduction plan requires looking at time (age) and income. These all are factors in determining saving and the savings goal.

New York Times best-selling author and radio host, Dave Ramsey, is one of America’s most trusted voices on money. Teaching from the Bible perspective and across all age groups, Dave has taught people what the Bible says about money: get on a plan; get out of debt; live on less than you make; save money and thereby build wealth; and be generous. Dave said in a recent blog post, “We teach living like no one else so that later you can live and GIVE like no one else.”

Dave’s first step of financial planning is about getting your family under control financially so you can take care of your own household first. While that plan is very sound for most, there is an age group that would require tweaking this advice.

Staff Writer, Bill Fay, is a major contributor at, an organization that helps people in all walks of life handle their personal and  business finances.  Bill spoke in a recent article that there is a struggle between debt and income as people get older because of their living on retirement and social security income. He says, “mortgage, home equity loans, car loans, credit card and even student loan debt are chasing people into their Golden Years.”

The thought that seniors reaching their Golden Years would have at least their mortgage debt paid off and other things in a manageable state, is a thing of yesteryear.  Baby  Boomers are spending their relatives’ inheritances to live a lifestyle that may not be lavish, although the cost is equal to or more than their income. The circumstances of seeing those of retirement age not having sufficient income to live the lifestyle they would like has not changed in decades. Boomers are, however, doing things differently.

While for Boomers, there is generally supplemental income from a part-time job, or a network marketing or internet business, that is used to augment the fixed income, they are also using savings as they budget out into the future.  The question becomes how far out can they go?  Continuing to pay off debt, or deciding to save has been an issue. Saving is required to complete their dream of living longer, healthier lives. They are found contemplating letting the life insurance money satisfy the debt they leave behind?

Being in this space makes it easy for Boomers to pay the minimum amounts on debt reduction, extending repayment out so there is more cash available for living comfortably in the now, including putting a little in savings to supplement the nest egg.

For the family with young children, or the family preparing to send kids to college (and who are almost college age), the debt to savings question becomes a little different. Weighing in on this subject, Melissa Tosetti, personal financial lifestyle expert, author, speaker and founder of the online magazine The Savvy Life says “Smart spending is one of the key habits for Living The Savvy Life.”

Melissa believes that making the decision to live a savvy lifestyle is a combination of modesty and smarts. She and her husband drove their cars for 10+ years (saving the expense of car payments) each before purchasing a new one in cash (or almost all cash) so they could reduce debt and save to the level they chose. She says the choice is yours and starting early, of course is best.

For singles, no matter what age, the consideration should always be to live a good lifestyle, save, pay off debt without incurring more and plan for your financial future.

All financial planning requires taking an honest look at your income, expenses and debt.  Deciding which is best to focus on first, debt reduction or savings, depends on where you are in life. To place a heavy focus on reducing debt that is not a mortgage or car payment, may require some serious thought before making a decision. There is a cost in added interest that will be paid. Weighing that against what cash flow might get relieved to pay debt down or off in large amounts is also to be considered.

For young families with time on your side, one of the things that Suze Orman, another of America’s most recognized experts in personal finance, teaches is the importance of financial planning that includes estate planning. Having a sufficient amount of life insurance and investments so that in the event of your early demise, your family will be taken care of is your responsibility.

Suze posted on an Oprah blog, “Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think.” Suze really put it like this … Not doing so can leave your family with a legal mess to clean up that could take years.

To conclude, all financial planning is done by choice. Whether to pay off debt or focus on saving really depends on several factors and it’s not a ‘yes’ or ‘no’ answer. The answer is ‘it depends’! Do your homework, be honest about where you are and what decisions need to be made.

Lastly, no matter how young or old you are, put an exit plan in place that will take care of your family if the unthinkable happens and they lose you. At the very least, no matter who you are, have enough insurance and a plan in place (a will) so that someone will take care of you after the fact, including paying off your debt, so no one else has to.

Article Author Bio:

V. Lynn Hawkins is “The Money Girl”, a small business strategist, co-author of Woman Entrepreneur Extraordinaire, founder of the P3 Academy of Social Entrepreneurship, and host of the weekly BIZ Info Zone WebTV Show in Google Hangouts on Air. She helps women (and a few good men) entrepreneurs plan and implement the strategies that build business and bring in more revenue, so they can do more for their family and more good in the world.

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