Sep 15, 2025
Depending on your personal situation and financial goals, you may not need to choose between paying off debt and saving for an emergency. You’ll need to assess your financial picture to decide if you can do both, or you might have to prioritize one for now.
Both are smart money moves that could help you achieve financial wellness. This article offers strategies that may help you pay off high-interest debt and grow your savings each month.
An emergency fund is money you set aside to cover any financial surprises. The idea is to leave these funds untouched unless necessary.
Even if you have debt to pay down, it’s important to create savings for financial emergencies. What if your car suddenly needs major repairs? How would you pay for emergency medical expenses? How would you manage if you lost your job? These are just some examples of why an emergency fund is vital.
An emergency fund could help you overcome sudden financial challenges. Whether budget pressures stem from higher costs, a job loss, or an unexpected expense, they can appear without warning. Saving in advance of such events is critical, even as you pay down debt.
If your emergency fund hasn't been your top priority, you're not alone. Fewer than half of Americans say they have enough savings to cover three months of expenses. Without emergency savings you might be forced to tap credit cards or other high-interest loans. That could increase your debt and undermine the financial security you’re working hard to achieve.
Experts recommend savings of three to six months of living expenses, depending on your personal situation. For example, if you’re self-employed, have a family with children, or rely on just one income to make ends meet, you might shoot for an emergency fund at the higher end of the range. But if you’re retired with a pension and live well below your means, a smaller emergency cushion might be enough.
Don’t worry if you don’t have three to six months of savings right now. Focus on taking small steps to build up whatever savings you can. Building the habit will help you in the long run. Some savings is better than none and can put you on better financial footing in case of unexpected expenses.
It may seem hard to save if you have debt from credit cards, student loans, or other financial obligations. Start by mapping out a savings strategy that works for you. Remember that even putting away as little as $50 or $100 a month starts building up your emergency cash reserves.
Building a budget might show you where you can find money to put aside each month. The 50/30/20 rule offers one approach that combines paying off debt and saving. Here’s how it works.
You can help make saving a habit by creating regular tasks that you stick to. For example, automate the amount you save each month by having it deposited directly into a separate account that you will only touch in case of emergency. If you find additional work to bring in extra income, you could separate that money from your general funds and divide between your emergency savings account and retirement planning. Whatever method you choose, think about sharing your goals regularly with a friend and asking them to help you stick to the plan.
When it comes to saving, don’t forget to take advantage of tax-friendly options. Putting money into a Health Savings Account (HSA) or Flexible Spending Account (FSA) lets you save on a pre-tax basis to pay for some out-of-pocket healthcare.
As you build your emergency savings, you should still look for ways to pay off your debt. Even if you're keeping up with monthly payments, chipping away at higher-interest debt can go a long way toward improving your financial health.
There are several reasons why focusing on your debt is a good idea.
The steps you take to pay off your debt depend on the types of loans you have and how much of your budget they take up. You might have higher-interest credit card debt, medical debt, student loans, or a mortgage.
Your first step in deciding how to pay off debt is identifying all your debt and the interest rates you’re paying. Once you have that information, consider whether you want to follow the snowball or the avalanche approach.
With the snowball approach you handle your debt with the smaller balances first. The avalanche approach has you focus on your highest-interest debt first. The best method depends on your personal situation and which method provides the greatest incentive to keep going.
For example, if you have a payday loan, you may want to tackle that one first. While a typical payday loan involves borrowing small amounts, the steep finance charges and penalties can add up fast, so it may help you to get rid of it as quickly as you can.
Another approach could be to consolidate your higher-interest debt with a personal loan. You may be able to combine several debt payments into one set regular monthly payment with a lower interest rate. This can give you more breathing room in your budget and provide peace of mind. In fact, 85% of surveyed customers said they saved money by consolidating debt with a Discover® personal loan.*
A debt consolidation loan can also give you more control over your budget. As an installment loan with a fixed interest rate, you will know precisely how much you owe each month and when the loan will be fully repaid. It's easier to budget for a fixed expense.
Consider an example in which you are paying off multiple creditors using credit cards versus a single loan from Discover Personal Loans.
Imagine you have a FICO®** Score of 720, a $5,000 balance on one card with a 19.99% APR, a $4,000 balance on another card with a 22.99% APR, and a $3,000 balance on a third card with a 23.99% APR and are paying $100 each month on each card. If you apply and are approved for a Discover personal loan to consolidate that debt and get an estimated 17.99% APR, you could save $3,359 and pay off your debt 11 months sooner, depending on the terms of your offer.***
Addressing your debt offers an opportunity to reevaluate your spending habits and prioritize financial goals.
If you’re ready to tackle debt, then paying it down might be your top priority. Making strides toward reducing your debt and watching the balance fall can be a big stress reliever.
If your debt feels more manageable, you may be able to rework your budget to prioritize your emergency savings. Then you can work on setting aside more money for other things that are important to you.
In the end, having a plan and sticking to it consistently is one of the best ways to pay down your debt and build your savings.
Interested in learning what you might save in interest with a personal loan for debt consolidation? Use our calculator to estimate your potential savings. It's quick, easy, and it won't affect your credit score.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to any obligation or liability whatsoever on the part of Discover, a division of Capital One, N.A., (Discover) or its affiliates.
* ABOUT SURVEY
All figures are from an online customer survey conducted in September 2024. A total of 736 Discover personal loan customers were interviewed about their most recent Discover personal loan with 546 of them using the funds to consolidate debt. All results @ a 95% confidence level. Respondents opened their personal loan between January and July 2024 for the purpose of consolidating debt. Agree includes respondents who ‘Somewhat Agree’ and ‘Strongly Agree’.
** FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.
*** This estimate maintains your current $300 monthly payment for a 62-month term at 17.99% APR with a total loan cost of $18,457. Rates are calculated based on Discover application data as of 6/23/2025.
