If you have a sizeable debt to manage, you would ask yourself whether you should pay off the debt first or save money for future contingencies. Here are the pros and cons of saving money and paying off debt to help you decide.

• Advantages of paying off debt first

It is smart for people to pay their debts first, especially if the interest on their debt is very high. In such a case of high-interest debt, you should first pay the debt and then focus on making savings. In this way, you can quickly pay off your debts. You can start the process by listing your credit card debts from the highest interest rates to the lowest rate. You can pay off more on the debts having high interest first and then pay the debts with minimum interest.

• The disadvantage of paying off debt first

It is not wise to pay all the debts at first without saving any money for emergency purposes. You can’t be sure that you won’t fall sick or won’t face any unforeseen situation such as breaking down of car or losing a job in the future. If you pay all your money towards your debt, you would be left with no money to pay for the emergency. Therefore it is always a good decision to pay off the debt first while keeping some money as an emergency fund.

• Advantage of saving money first

If you want to ensure that your family gets a decent standard of living and is in a healthy state, then it is important to save money first, and with the remaining money left, you can easily pay off the debt. If this situation fits perfectly for your case, then undoubtedly, you should go for this option. A family is a priority, and everything comes second. You should make a plan on how to save some dollars into your emergency account and then spend the rest amount for paying the debt. When you save a decent amount into your emergency fund, you can also use the fund later for paying high-interest credit card debts.

• Disadvantages of saving money first

If you save most of the money, your debt will pile up, which would mean that there will be a delay in payment schedules, and you will end up paying more interest rates. You will also get more calls from your debt collector if you miss any payment.

Conclusion

If you are confused about whether to pay off debt or save money for an emergency, then you should plan on the interest rates. You can start by making a budget for yourself to decide whether you want to pay your debt first or save money. When you get a realistic idea and understanding of your present situation, you will understand your spending, savings, and how much you can save after paying off your debt.