Should I Pay Off Debt or Save First?
Last Updated: October 3, 2025
If you’re asking if you should pay off your debt or save first, you probably want a simple answer. The truth is, both matter.
In 2024, Indiana ranked fourth lowest nationwide for per-person debt at $186.[1] This puts the average Hoosier ahead of most fellow Americans. However, 45% of adults in Indiana don’t have an emergency fund.[2]
The right move between paying off debt vs savings depends on your debt, income, and risk of surprise costs. This guide breaks it down so you can make a clear plan you can follow.
Understanding Paying Off Debt vs Saving
In short, debt payoff cuts down what you owe. It can reduce interest costs and frees up cash each month. Saving builds a cushion for emergencies and future goals.
You do not want to pay down a credit card one week and then swipe it again the next because a flat tire wiped you out. In many cases, a smart plan is to set aside a small emergency fund first, then target high-interest debt. After that, you may want to grow savings for bigger goals.
But, this may not always be the right solution. In some scenarios, it can be better to pay off debt before you save to reduce interest accrual.
For a quick view of how paying off your debt might affect your finances, try our loan balance calculator. It can show you how extra payments could change your payoff date and total interest costs.
The Case for Paying Off Debt First
High-interest debt costs you more than most savings accounts will earn. A typical credit card annual percentage rate (APR) is often far higher than bank savings rates. When you knock out those balances, you gain room in your budget and can allocate that money towards other debt or save for a goal.
When Paying Off Debt First Makes Sense
Paying off debt first may be beneficial when:
You carry high-interest credit card debt.
Your debts keep you from meeting basic needs.
You already have a small emergency fund set aside.
You want faster progress and less interest over time.
If you want to take this path, be sure to keep paying all minimums on time. You may want to consider putting your extra money toward the highest-interest or highest balance account first. After you pay off one card or loan, start paying down the next.
The Case for Saving First
Savings can protect you from new debt when life happens. Even a small cushion can keep you from putting surprise costs on a card. Saving also builds good habits you will use for life.
When Saving Should Be a Priority
It might be better to save before you pay off your debt if:
You have no emergency fund yet.
Your income changes from month to month.
You face near-term costs (car repair, moving, medical copay).
Your debt rates are low (like many federal student loans in repayment).
If you choose this path, start by opening a simple savings account and naming it “Emergency.” You might also want to consider a Connect account if it fits your situation. Learn more about auto-transferring a small amount from your check each payday and round-up savings.
Making a Financial Plan for Paying Off Debt and Saving
When you’re ready to create your own financial plan to pay off debt and save, here are some principles to keep in mind. Whether you choose to pay debts vs save first, or vice versa, these tips may help.
1. Protect Yourself First
It’s smart to protect yourself from unexpected expenses. So, you may want a starter emergency fund. Keep this money in a separate account that you don’t touch unless there’s a true need. Learn where to keep an emergency fund and how to get started.
2. Tackle High-Interest Debt
List your debts, rates, and minimums. Pay extra on the highest APR while you continue to pay minimums on the rest. If you need to, consider using your tax refund or a side gig to speed this up. To explore other debt payoff strategies, learn the best ways to get out of credit card debt.
3. Keep Growing Your Savings
After you pay off the highest-rate debt, raise your emergency fund to cover one month of expenses. Then consider increasing it to keep you afloat for three months. Use automatic transfers so you do not have to think about it. For more ideas to grow your funds, find out how to start saving with small deposits.
4. Match Goals to the Right Account
For short-term goals you plan to reach within a year, consider stable accounts you can access, such as a Money Market. For money you will not need for a set time, a CD or IRA may make sense.
When To Revisit Your Plan
Your plan is not set in stone.
Consider reviewing it when:
Your income changes.
Interest rates move up or down.
You clear a major debt.
You have a life change.
Set a reminder every quarter. Check balances, rates, and your emergency fund level. Then, adjust as needed.
Build the Right Financial Plan With Centier by Your Side
So, is it better to pay off debt or save? Start with both: build a small cushion, then target high-interest debt, then grow savings. This path lowers risk and interest costs at the same time. Use accounts that fit each goal and lean on simple tools and automatic transfers. Small steps add up when you stay consistent.
Centier's digital banking has free tools to use for goal setting, where you can set your goal amount and date of completion, and account for it to track your goal. These tools will tell you how much to set aside per month to reach that goal in your set timeframe and show you a bar and percentage to goal in your digital banking for tracking. You can set multiple short and long-term goals in there to help reach your goals and keep them visible.
To compare accounts and find the right one for your needs, explore Centier’s savings products.
Sources:
[1] https://www.in.gov/comptroller/files/State-of-Indiana-Financial-Report-2024.pdf
[2] https://cdn.finra.org/nfcs/2021/state_pdfs/Indiana_2021.pdf