Ready to fix your finances but unsure if you should pay off debt first or build up your savings? Here are great tips to help you get back on track.

Figuring out this financial freedom stuff can be a little confusing sometimes! Save first or pay down debt? If we save first, aren’t we just accumulating more debt? But if we focus on paying down debt, then how do we even begin to save money? Ack!

Anyone going through the process of trying to gain more stable financial footing eventually finds themselves feeling stuck in a catch 22. If you feel like you’re running in circles trying to figure out how to do what and when, you’re definitely not alone!

I know I’ve definitely struggled finding these answers. It seems logical to pay off debt as fast as possible. After all, debt usually includes interest and interest is time-sensitive. The longer it takes to pay off debt, the more interest we end up shelling out for. Yikes!

On the other hand, if there’s an emergency while paying off debt, then we’re really in trouble, right? Basically, an emergency will swiftly undo any progress we’re making as we pay off debt. Suddenly, with one swipe of the credit card, one car repair, one plumbing emergency, or one vet bill, we’re right back in debt again.

It’s enough to make your head spin.


Where to Start…

First off, I should start by saying that I don’t consider myself to be some sort of financial guru or expert. In fact, when I started this blog, I was pretty much a disaster with money. My husband and I were fighting about money all the time, and I had no idea how to get a handle on literally anything. I wasn’t making good choices, and although he had always been pretty good with money, I was taking him down with me.

After a few life changes (which you can read about here), my husband and I started to figure out ways we could successfully tackle our debt, make better money choices, and start building up our savings. We looked to experts who could help us on our journey. We started to live more simply and embrace a less-is-more-mentality. We also started to eat at home more often, and we cut back on shopping for toys, books, clothing and “stuff.”

One of the biggest helpers along the way was our participation in Dave Ramsey’s Financial Peace University. It helped us identify some roadblocks we were running into and figure out how to even start to tackle our debt and make headway financially. In Dave Ramsey’s course, his first recommendation for getting out of debt is to stop following the advice of broke people. Again, we have to look at the successful debt slayers and figure out what they can show us.

That’s why I also recommend Slaying the Debt Dragon (love that title!) written by my friend Cherie Lowe. In her book, she outlines how she successfully paid off $127,000 in debt. (Wow.) Cherie offers several tips for those of us who are getting started paying off our debt and facing these questions.

Pay Off Debt or Build Up Savings?

Financial Stability

First, Start an Emergency Fund

Both Cherie Lowe and Dave Ramsey recommend starting an emergency fund. This is Dave’s Step One in his Total Money Makeover Baby Steps. Cherie swears by it as well.

The thought behind an emergency fund is this: When life’s unexpected emergencies come along (and they will come along), an emergency fund of $1,000-$2,000 will help you address the emergency without going further into debt.

Time and time again, savings bloggers and financial experts have reiterated the importance of an emergency fund. It can seem a bit scary, of course. Coming up with $1,000 seems nearly impossible when you’re broke. In fact, you might be thinking, “I could sooner fly to the moon than produce $1,000 today.”

However, there are ways you can easily start an emergency fund today. You don’t have to do it all at once. Break it down into smaller parts. $1,000 is less than $20/week (it’s $19.23 to be exact).

Think of the ways you can possibly come up with $20 extra per week. Could you skip a trip to the coffee shop? Forgo a magazine in the checkout line? Pack a lunch instead of buying something? Just by performing these small actions, you can sock away $20 per week. In a year’s time, you’ll have $1,000 put away.

Now, if going without an emergency fund for a whole year seems a bit scary, there are other ways you can build up your emergency fund right now. You can sell something (or a few somethings) you have on hand. You can cut back on your bills, utilities, and eating out. Or, you can pick up an extra job or do some work from home. There are many surprisingly simple ways you can build your emergency fund quickly.

Financial planning company Brightpeak offers a free eBook with tips to help you boost your emergency fund. The sooner you build up your fund, the sooner you’ll feel safer and more at peace if you’re facing any emergency.


Then, Start Paying Off Debt

Once you’ve determined you want to start working toward slaying your debt and tackling savings, the first thing you need to do is to examine your budget. This means gathering together all of your bills and looking at what you owe—the good, the bad, and yes, even the super ugly.

If you’re new to budgeting and aren’t sure how to get started, check out our budgeting 101 archives for tons of tips. These resources will get you set up to start making real headway on your debt and figuring out where you can save a little and how to get control of your finances.

Once you’ve gathered your bills and assessed your budget and amounts, it’s time to make yourself a promise. This was one of the biggest challenges for me, and I know it’s hard. Promise yourself you will stop taking on more debt.

If you really want to get things paid off, you have to stop taking on more debt. Having an emergency fund in place will help give you the confidence and safety net if something comes up unexpectedly. But to really make progress and headway on getting your finances under control, you have to stop taking on more. Then, you’ll be ready to pay it down and slay it!

Once you’ve figured out your budget and you’re ready to start crushing your debt, you’re probably wondering how to begin. Again, I have to recommend a Dave Ramsey method: the “Debt Snowball.” (Sounds kind of fun, right?)

With the Debt Snowball, you gather all of your debts together and start to pay off the smallest debt first. Other advisers recommend looking at interest rates and other factors first, but the Debt Snowball method is one of the most satisfying and gives you almost instant gratification.

When looking at your budget, figure out how much extra you can put toward paying down your debt, while still making all of your other minimum payments. If you’ve just worked on your emergency fund, chances are you’ve gained a few tips you can now apply to earning extra to pay off debt.

For some, it might be really challenging, so maybe you can only afford $10 extra toward paying things down. That’s fine! Any progress is still progress. Don’t get discouraged. Just do what you can (and continue to look at areas of your budget you can shave down to boost your snowball).

Each month, as you pay that little extra toward your debt, you’ll see real measurable progress! It’s exciting to see it go down—and so freeing! Once your smallest debt is paid off, take everything you were paying toward that debt and roll it over toward tackling the next smallest item on your list. Keep going and use your momentum to propel you forward!


When to Boost Savings

If you’ve managed to slay all your debt (with the exception of your mortgage), then you’ll want to start building up your savings. It can take quite a while for most of us to get to this step, because the reality is, so many of us are living with the burden of debt.

Coming out from under the weight of debt is a tough battle, but once you’ve waged war, you’ll feel such confidence and reassurance in your abilities that you’ll want to keep going. It can be a challenge not to backslide, and of course, there are always unexpected things that can happen like a job loss, injury, or major emergency—all of which can derail some of your progress.

When you’re out of debt, you’ll want to start building up enough savings so that NO disaster out there will derail your progress. This means saving up 3-6 months’ worth living expenses. Think of how much peace it brings to know you could survive a 6-month crisis without losing your home or sending your family into a debt spiral. That is true financial peace.

If the idea of becoming debt free and creating ample savings seems like an impossible dream, don’t give up! Take small steps to move toward your goals and you’ll reach your destination before you know it. It’s all about progress and moving forward, even when things seem hard or scary. Take small steps to keep you moving on your way.

We can all benefit from feeling at peace from our financial worries. Even if we’ve made mistakes, we can forgive ourselves and start to work toward our goals. Try not to beat yourself up about the past. Instead, move forward with a plan and know you can start saving and tackle your debt today!

Other helpful resources:


Ready to finally fix your finances, but simply not sure where to start? Is it more important to pay off debt first, or build up your savings? Here's how to know exactly what steps to take (and in what order) to get--and keep--your finances on track!

Ruth Soukup
Ruth Soukup is dedicated to helping people everywhere create a life they love by follwing their dreams and achieving their biggest goals. She is the host of the wildly popular Do It Scared podcast, as well as the founder of Living Well Spending Less® and Elite Blog Academy®. She is also the New York Times bestselling author of six books, including Do It Scared®: Finding the Courage to Face Your Fears, Overcome Obstacles, and Create a Life You Love, which was the inspiration for this book. She lives in Florida with her husband Chuck, and 2 daughters Maggie & Annie.
Ruth Soukup


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