Save Money, Pay Down Debt or Both

I'm going to share my views on whether you should pay off debt, save and invest or both at the same time. It certainly can be a dilemma to choose from. Do you reduce your debt or save? Which should you prioritise?

It will all depend on your financial situation and money goals, as for me I choose paying off debt. The reason I do is because it's our debts that stop us from saving more and investing in the first place. It's debt that erodes your money away. Without any debt you can save and invest your money with financial security.

Also you should already be automatically saving and investing a portion of your income through your company pension scheme. Be sure you take advantage of this and contribute as much as you can to your company pension.

Whether you save or pay down debt depends on the interest rates. If you have high interest debts above your saving interest rates then it makes sense to pay off debt. It a bit silly earning low returns on your savings and investments when you're paying 25% on the debt you owe. This is what I did with my saving and I even used my emergency fund to clear off my debt. While that may not be a great idea and I recommend everyone should have some savings just in case the unexpected happens using my savings saved me money on debt interest payments.

Since then I built my emergency fund back up again and have no intentions to spend it on debt again. Your emergency fund should be the first thing you ever save for and only be used when a financial crisis hit. Having one will prevent you from dipping into debt when you desperately need some fast cash.

You may also decide to pay off debt and work towards your saving goals at the same time. Maximising your savings, investments and balancing is against your debt is how you'll reach financial independence. It's certainly worth paying extra into your mortgage. The main thing to remember is to prioritise expensive debt and clear off your balance before saving and investing.

It's likely you have more debt than savings in your youth and you'll only have a certain amount of money every month to allocate to savings and debt. Either way, paying off debt or saving you'll be putting yourself in a better financial position.

Sure you should be saving however paying off debt means you're saving too. Every extra pound and penny you pay back reduces your interest payments which will save you a massive amount of money.

In the end you have to decide what is right for your circumstances, current situation and needs. For example if you're having a baby then you may want to focus on saving up for nine months to prepare for the birth.

Since I'm on a journey to debt freedom and running a debt blog and I'm always going to vote with paying off debt first over saving and investing. Being debt free opens up better investing growth. Once all your debt is gone you'll be able to do some heavy saving and investing without debt dragging your returns down. In the long run clearing our debts is the best financial thing for us.