Paying Off Debt vs Saving: Which is Better? (2024)

Read Time: 4 Min

Is it better to pay off your debt or save money? Understand some of the benefits and considerations associated with each, when you should consider prioritizing one over the other, and tips for doing both at the same time.

At Huntington, we know paying off debt and putting money into a savings account are each important. It's great if you can do both, but what if financial constraints mean you need to choose between paying off debt and contributing to savings?

To help you make this decision, let's start with understanding debt.

Understanding Your Debt

The first step to understanding debt is knowing debt terminology. Revolving credit, like credit card debt, and term loans, like a car loan, can affect your financial future differently. Revolving credit lines continue to rollover until they're paid off, term loans have a set ending. It's easy for revolving credit lines to get out of hand.

You also need to understand what annual percentage rate (APR) isand how that compares to annual percentage yield (APY). APR is what you pay on the debt you owe. APY is what you earn on savings. Knowing your APR and your APY gives you what you need to start turning these abstract ideas into concrete information.

We have a financial calculator to help you decide if you should pay off debt or put money into savings. First, you enter your balance and APR for the debt section, and then enter the monthly savings contribution and the APY for the savings section. The calculator will crunch the numbers and provide you with information that can help you decide which option will likely work best for you.

Calculators work with the information you enter. They cannot see your full financial picture, and everyone's financial goals and outlook are different. Remember, there are Huntington bankers at your local branch that can provide better insights than an online calculator, but a calculator is a good way to get started.

Paying Off Debt First

Paying off debt first comes with the benefit of reducing the amount of money you owe from interest.

If you decide it's best to focus on paying off debt first, then there are two methods to consider. The snowball method of paying off debt starts with the bulk of your payments going toward your lowest balance first, paying it off, and then working your way to paying off the next lowest balance. The avalanche method focuses on your highest interest rate debt, paying it off, and then working on the next highest interest rate debt. The snowball method provides smaller wins to help keep you motivated and decrease the number of payments you make, while the avalanche method could potentially save you more money in the long run.

We have an article that focuses on paying off credit cardsand other revolving lines of credit. That type of debt may not fit neatly into the snowball or avalanche method because it doesn't have a defined end.

If you're feeling overwhelmed by debt, we can help you with a debt consolidation loanor provide some financial coaching from one of our bankers. Additionally, there's debt managing technology like apps and Huntington's household budget toolsthat can also be valuable resources while you take control of your debt.

You may feel more comfortable focusing on building an emergency fund before tackling debt. In situations where loans are secured at a favorable interest rates, you might prefer to save and invest in the hopes those returns will exceed the interest that accrues on your debt.

Saving First

Focusing on savings comes with the benefits of not relying upon borrowing funds in the event of an emergency. We offer a variety of tools to help you reach your savings goals. We also have a list of 10 money saving tipsand banking technology to help support building a savings account.

First, you can set up automatic transfers between your Huntington checking account and your Huntington savings account, as well as setting up a reoccurring transfer from another bank. This will transfer the amount you set at a pace you schedule. Second, we have Money Scout^®, a savings tool, that identifies small amounts of money to transfer from your checking to savings—automatically once you enroll^†. It analyzes your spending activity to help you save smarter. Finally, we have Savings Goal Getter^℠, which is a savings goal tracker. Savings Goal Getter lets you set 10 individual savings goals, plus an emergency fund, all for one savings or money market account.

It's tempting to focus on saving money or paying off debt but it's better to try to handle both. This way you get the benefit of saving money from tackling debt while also having an emergency fund for the unexpected.

Open a Huntington Checking Account

If you want a basic checking account with no monthly maintenance fee, or an interest-earning checking account, we've got the options that are right for you.

Learn More

How You Can Pay Debts and Save

You will want to set a household budget before you try to wrangle debt and put money away simultaneously. The act of creating a household budget puts your financial situation in front of you in a tangible way.

We have a household budget calculatorwhere you can see the numbers behind how much you're bringing in, how much you're paying out, and how much you have left over. You may also want to take advantage of Spend Analysisto help you create your budget or fill in the fields for the calculator. Spend Analysis uses real-time data input from your account to categorize your spending habits.

To get a feel for how much you can afford to save and put toward debt, create a budget using your expenses and savings rates as they are now. Then, adjust the numbers to accommodate additional payments toward debts and additional amounts going toward savings. Do the numbers add up? Is that feasible or do you need to think about cutting some discretionary spending until you pay down some debt or build up an emergency fund?

Handling debt while building your savings isn't easy. If you start to feel overwhelmed or confused, visit a local branchor contact us and talk to one of our bankers.

^†Money Scout automatically schedules transfers from your selected checking account to your selected savings account. A money market account (MMA) cannot be a selected savings account for use with Money Scout. A scheduled transfer may be canceled before midnight ET on the day it is scheduled. Transfer amounts and frequency may vary and will reduce the money available in your checking account to cover other transactions. You are responsible for ensuring your checking account has sufficient funds. You may be charged overdraft fees if your account falls below -$50. Subject to eligibility, terms and conditions, and other account agreements.

The information provided in this document is intended solely for general informational purposes and is provided with the understanding that neither Huntington, its affiliates nor any other party is engaging in rendering financial, legal, technical or other professional advice or services, or endorsing any third-party product or service. Any use of this information should be done only in consultation with a qualified and licensed professional who can take into account all relevant factors and desired outcomes in the context of the facts surrounding your particular circ*mstances. The information in this document was developed with reasonable care and attention. However, it is possible that some of the information is incomplete, incorrect, or inapplicable to particular circ*mstances or conditions. NEITHER HUNTINGTON NOR ITS AFFILIATES SHALL HAVE LIABILITY FOR ANY DAMAGES, LOSSES, COSTS OR EXPENSES (DIRECT, CONSEQUENTIAL, SPECIAL, INDIRECT OR OTHERWISE) RESULTING FROM USING, RELYING ON OR ACTING UPON INFORMATION IN THIS DOCUMENT EVEN IF HUNTINGTON AND/OR ITS AFFILIATES HAVE BEEN ADVISED OF OR FORESEEN THE POSSIBILITY OF SUCH DAMAGES, LOSSES, COSTS OR EXPENSES.

Third-party product, service and business names are trademarks/service marks of their respective owners.

Savings Goal Getter^℠is a service mark of Huntington Bancshares Incorporated.

Money Scout^® is a federally registered service mark of Huntington Bancshares Incorporated.

FAQs

Paying Off Debt vs Saving: Which is Better? ›

You may feel more comfortable focusing on building an emergency fund before tackling debt. In situations where loans are secured at a favorable interest rates, you might prefer to save and invest in the hopes those returns will exceed the interest that accrues on your debt.

View Details ›

Is it better to pay off your debt or save money? ›

Long-term savings goals can benefit greatly from starting early and saving often—but debt, especially high-interest debt, can quickly snowball if not paid off within a reasonable time. Determining how much to devote to each important financial task can be a complex and difficult decision.

When buying a house is it better to save money or pay off debt? ›

If the trends signal that you should purchase soon, you may want to save for a home. It may make more sense to pay off debts if you're holding off on buying and are worried about the rates a lender may charge. Factors such as your credit score and DTI will influence the mortgage rate and terms a lender offers.

Get More Info ›

Is it better to pay off debt or save in a recession? ›

If you have an emergency fund saved, you're probably ready to prioritize paying off debt during a recession. When it comes to paying down debt during a recession, you want to focus on your highest interest debt first – things like payday loans and credit cards are a good place to start.

Do millionaires pay off debt or invest? ›

Millionaires typically balance both paying off debt and investing, but with a strategic approach. Their decision often depends on the interest rate of the debt versus the expected return on investments.

Read The Full Story ›

Should I save or clear debt first? ›

You'll rarely be able to earn more on your savings than you'll pay on your borrowings. So plan to pay off your debts before you start to save. Make sure you understand what interest you're paying on your different loans, so you know which ones you're paying more for.

Get More Info ›

What is a good amount to have saved? ›

Rule of thumb? Aim to have three to six months' worth of expenses set aside. To figure out how much you should have saved for emergencies, simply multiply the amount of money you spend each month on expenses by either three or six months to get your target goal amount.

Keep Reading ›

Is it better to have no debt or a down payment? ›

If you're not focusing on paying down debt faster, you may pay for it in interest charges on your outstanding balances. It won't help your credit. Although a larger down payment can make it easier to qualify for a lower interest rate, it won't help much if your credit scores are being dragged down by high debt.

Discover More ›

Why is it not a good idea to pay off your mortgage? ›

Even after paying off your mortgage early, real estate prices could plunge, leaving you with a potential loss. “The thing is, no one can give you a guarantee on an investment,” says Bowen. “You can put your money in the stock market and lose it.

Get More Info ›

Should I empty my savings to pay off my credit card? ›

While you can tap into savings to pay your credit card bill—especially if you've got mounting credit card debt and a flush savings account—it's not something you should get into the habit of doing. Using savings to cover a credit card bill will have a negative impact on your savings goals.

Find Out More ›

Is it better to build wealth or pay off debt? ›

Investing and paying down debt are both good uses for any spare cash you might have. Investing makes sense if you can earn more on your investments than your debts are costing you in terms of interest. Paying off high-interest debt is likely to provide a better return on your money than almost any investment.

Explore More ›

Should I pay off debt during inflation? ›

Prioritize paying down high-interest debt

As inflation rises, central banks have been raising interest rates to make consumers spend less. These increased rates make it more expensive to borrow money, and make existing debt even more costly. For most consumers, the biggest impact of these rate hikes is on credit cards.

Learn More ›

Is now a good time to pay off debt? ›

This could be the right time to pay off your credit card debt. Between high and rising prices and the high-rate environment, paying your credit cards off now may put you on better financial footing. If you can't afford to pay your debts off immediately, then consider reaching out to a debt relief service for help.

See Details ›

Why do rich people love debt? ›

And even for people who may not be able to leverage a Dali painting hanging in their foyers, debt can be a useful tool to keep their wealth engines running if it comes cheaply enough relative to other opportunities, keeps their assets working for them and, above all, if the risks are understood and tolerable.

Keep Reading ›

Should I contribute to a 401k or pay off debt? ›

Key takeaways. If the interest rate on your debt is 6% or greater, you should generally pay down debt before investing additional dollars toward retirement. This guideline assumes that you've already put away some emergency savings, you've fully captured any employer match, and you've paid off any credit card debt.

Know More ›

How rich people use debt to get richer? ›

Wealthy individuals create passive income through arbitrage by finding assets that generate income (such as businesses, real estate, or bonds) and then borrowing money against those assets to get leverage to purchase even more assets.

Read On ›

Is it better to pay off debt or let it fall off? ›

If you have the means to cover an old debt, the right thing to do is pay it off. If you are struggling with debt in general, National Debt Relief can help you pay it off for less than you owe in a shorter amount of time. That way, your debt can be gone before it becomes old.

Is it better to have debt or be debt free? ›

Less debt usually leads to a better credit score, especially if you have a history of timely payments. Credit bureaus take note of how much of your available credit you're using, and lower utilization generally leads to a higher score. The journey to become debt-free isn't easy, but it can be incredibly rewarding.