Should You Save While Paying Off Debt? What You Need to Know
- Finances Without Fear
- Jun 17
- 3 min read
One of the most common questions I get from couples working on their finances is: Should we be saving money while we’re paying off debt?
The answer is yes -- but with a strategy. Let's break it down.
In this post, I'll go over how to balance saving and debt payoff, why a small emergency fund is key, and how to avoid falling back into debt as you make progress.
The Importance of a Starter Emergency Fund
Before you start on your debt, you need to build a starter emergency fund. This will be your financial safety net while you focus on paying off debt. Having this buffer prevents panic and reusing credit cards when unexpected expenses hit (like car repairs, medical bills, etc.)
A starter emergency fund is a minimum of $1000 and a maximum of $5000. This is simply your cushion for those ankle biter emergencies. You get to decide the amount with which you are most comfortable. If you have no savings, start with $1000. If you have some savings, you may decide to bulk it up a little before paying down debt. Just don't go over $5000. You want to keep the amount small so you have more to pay towards your debt.
Pro Tip: Make sure your emergency fund is liquid and easy to access—think high-yield savings account, not investments. That said, it's also beneficial to keep your emergency fund at a separate bank so you aren't tempted to use it.
The Danger of Skipping Savings Entirely
I see this problem often in my coaching. You are trying to so hard to pay off debt, but these little emergencies keep happening. You make progress on your debt only to go back into debt because the water heater went out or the dishwasher broke. It is so frustrating! When this happens over and over again, you may want to throw up your hands and give up.
Don't get caught in this trap! Building that small savings up front will help you avoid this cycle. You won't be forced to use the credit card in an emergency. You will fund your own emergency.
Save for Known, Upcoming Large Expenses
Vehicle registrations, holidays, travel, back-to-school expenses, etc. These are not emergencies - they are expected.
Don't let these expected expenses throw off your budget and debt progress. Plan ahead by setting up sinking funds to cash flow these without pausing your debt snowball.
Make a list of all non-monthly expenses for the next 6–12 months and start saving a little each month toward them. When Christmas comes this year, you'll be ready with cash.
Focus on One Thing at a Time
When you try to save aggressively and pay off debt and invest, you water down your momentum. You will progress much more slowly, and you'll lose your momentum and your motivation.
Focusing intensifies your results. Once the debt is gone, you can build savings faster than you thought possible. Focus on your starter emergency fund first, then one debt at a time, then your fully funded emergency fund. Once you have these steps done, you will be able to maximize your investing like you've never done before.
Remember - your debt-free journey is a season, not forever. This can be very challenging at times, but it's not forever. Pausing investing is hard when you know how important it is to invest, but it's not forever. Focus on one thing at a time, and you will get through this season much more quickly.
Why a Small Emergency Fund Is Enough (For Now)
Did you know that most Americans don't have the cash for a $400 emergency? Many people have no savings, and most emergencies are small. Your $1,000–$2,000 fund is enough to handle the majority of them.
The goal is momentum. This small emergency fund will be just enough to take care of small emergencies, keeping you from going further into debt.
Once you're debt-free, you will build a full 3–6 month emergency fund quickly with your freed-up income. This fully funded emergency fund will be the thing that keeps you debt-free. Between no debt payments and a full emergency fund, you will feel peace like you've never felt.
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