Should You Save or Pay Down Debt First? What People Are Doing in 2026

Jessica Tolar
1 day ago
3 min read

Person reviewing finances with laptop, balancing savings and debt strategies

If you’ve ever asked yourself whether to address debt or grow your savings first, you’re not alone. It’s one of the most common financial dilemmas people face — especially now in 2026, when interest rates, cost-of-living pressures, and unexpected expenses can pile up fast. The good news? You don’t have to choose one over the other entirely. There’s a balanced approach that works for most people.

Why Doing Both Matters

Many people try to throw every extra dollar at paying down credit card debt, thinking that eliminating debt as fast as possible will fix everything. The problem is, if you don’t have any savings set aside, even a small unexpected expense — like a car repair or medical bill — can send you further into debt.

That’s why I usually suggest keeping a modest savings cushion while you work on your debt. Think of it as a safety net: it protects you from emergencies without derailing your progress. For most people, $1,000 is a reasonable minimum starting point, especially since most Americans can’t cover a $1,000 emergency today.

If you’re feeling a little more ambitious, you might aim for one month of living expenses saved before focusing more aggressively on debt. Eventually, your goal can grow to 3–6 months of expenses, which is the kind of cushion that makes you feel confident no matter what life throws at you.

Which Debt Should You Pay Off First?

Once you have that initial savings milestone in place, your next step is tackling debt — but not necessarily in the order you might think. Instead of always starting with the highest interest rate card, you might consider looking at which card is costing you the most money each month. Sometimes a lower-interest card with a high balance ends up costing more in interest than a higher-rate card with a small balance.

The key is to track your debt month to month. As you pay one card down, another may become the one that’s taking the biggest chunk of your money. This flexible approach ensures that your strategy is always aligned with what’s actually draining your finances.

How to Balance Savings and Debt

If your numbers allow it, you could try splitting your extra funds between savings and debt until you reach that initial savings milestone (whether it’s $1,000, one month of expenses, or another goal that makes sense for you). After that, all extra money could go toward paying down debt as fast as possible.

Once your debt is fully paid off, you could then redirect that same money toward growing your savings — eventually reaching the 3–6 months of living expenses that provide longer-term stability.

If your numbers don’t allow for doing both at the same time, you might prioritize building your $1,000 safety net first. Without it, even a small emergency can quickly send you deeper into debt and undo all the progress you’ve been working toward.

The Takeaway

The choice between saving and paying off debt doesn’t have to be an either/or decision. A small safety net protects you from unexpected setbacks while you strategically work on your debt. Then, once debt is gone, you can focus fully on building the savings that provide confidence, control, and freedom in your financial life.

By balancing the two — starting small, paying attention to what’s actually costing you money, and adjusting month to month — you can move toward financial stability without constantly feeling like you’re choosing the lesser of two evils.