If the interest you pay is higher than the interest you earn, you are losing money.

For example, it can mean not having an emergency fund to fall back on, setting you up to take on more debt any time an unexpected expense hits. Looking for a new savings account? Here, we offer scenarios for when each choice — saving or paying down debt — makes the most sense.

When your liabilities include things like credit card debt or that loan you got from the furniture store to buy your couch, paying debt first can help you solve ongoing problems with managing your money. Identify your real expendable income, create a budget based on that number and include paying down debt as a significant part of the equation, Klein says.

Building a sizable reserve in a savings account might offer comfort, but it comes at a low return and a high cost. Each month, your net worth erodes further as you accrue interest on your debt faster than you earn it on your savings. Pay off credit card debt with a personal loan — Find the Lowest Personal Loan Rates. The deduction is probably worth less than the annual interest you would have paid on the loan.

Further, your goal should be to improve your overall financial condition, not to maximize tax write-offs, Smith says. There are a number of good reasons to save first and pay later, but the No. If your debt has a very low interest rate, it may make sense to save first, says Melissa Joy, CFP professional, partner and director of wealth management at the Center for Financial Planning, an independent registered investment advisory firm in Southfield, Michigan.

But, Greene says, it makes sense to increase your debt payments, starting with high-interest credit card debt, once you have your mini emergency fund in place.

Both improve your overall financial picture. You might be paying more interest than you need to, but having savings to cover sudden expenses like car repairs keeps you out of the debt cycle.

In addition, having sufficient savings provides peace of mind, Smith says. Some people are unlikely to feel at ease with any strategy, no matter how financially logical, that causes their savings to fall below a level that feels right to them.

For these people, saving and paying down debt at the same time might be the best approach. Neither extreme is likely to turn out well if it gives you considerable anxiety that prevents you from sticking to your plan, Smith says. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear.

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Should You Pay Debt Before Saving? - Bankrate

Amy Fontinelle June 12, in Savings. Paying debt before saving When your liabilities include things like credit card debt or that loan you got from the furniture store to buy your couch, paying debt first can help you solve ongoing problems with managing your money.

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