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Is it better to save up or pay down?

One of the most frequent questions to arise in personal finance is how to decide between saving money and paying down debt. The options seem equally critical, and they are!

Let’s take a look at some things you may want to consider.

The first thing to do is to look at the interest rates on your debt. “If you’re paying higher rates, typically, you want to pay those off,” says Nicole McAllister, Branch Manager of Lagimodiere Branch at SCU. High interest rates, such as those on credit cards, can keep you trapped in an expensive cycle of high minimum payments that mostly cover the interest, but don’t do anything to reduce the principal. Once the balances are down to zero, do everything you can to keep them there — and put that money to work somewhere else.

That’s where the one-size-fits-all advice ends. Because apart from tackling high interest rates, the choice between saving and paying down debt comes down to your situation, your priorities, your goals, and the timelines you’re working with. There’s no doubt that young investors should begin contributing to long-term savings plans as early as possible to maximize the time their money spends in the market. But as long as you have debt where should you put your focus? How can you find the perfect balance between saving and paying down your debt?

“It’s not cut and dry,” says McAllister. “You always have to look at your cash flow, your goals, and where you’re putting your funds.”

The answer lies in what’s important to you. “This is a question we regularly ask our members,” says McAllister. “In five years, are you going to be talking about how you’re happy that you paid off your mortgage? Or are you going to worry that you depleted your nest egg in doing so?” It may be helpful to sit down with an advisor to organize your goals and priorities. Let’s say you’re planning to go back to school next year. You may decide to pay only the minimum payments while you save up for school expenses, then increase your payments when you have more room in your budget.

Still feeling unsure or overwhelmed? Take a deep breath and consider asking for help.

“Understanding all of your unique factors, an advisor can walk you through your options and guide you through these decisions. An advisor will help you build a plan to ensure you achieve all your financial goals.”


Take the next step — contact us to continue on your journey to your best financial future:

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