Do you have credit card debt? What about student loans? For anyone facing debt, a dilemma stands in the way of navigating personal finances: is it more critical to eliminate debt or prioritize saving money? Balance is important in achieving your financial goals, so let’s break it down and look at both sides of this question to think about the big picture of your financial future. Asking the right (but sometimes tough) questions is a great way to start moving forward toward your goals.
If you are able to move through your debt-free journey, there will be immediate benefits, as debt can be a source of heavy stress for those who are carrying it or are stuck in the cycle of debt. Without debt, you may feel more financially stable and secure personally or even have a sense of peace.
Living debt-free means more money in your pocket. This isn’t just from avoiding monthly payments, but from saving hundreds or even thousands in interest over time. As you pay off balances and manage your finances more intentionally, your credit score is likely to rise, which can improve your chances of qualifying for better mortgage rates, auto loans, or even rental agreements.
Plus, being debt-free gives you:
Looking at the financial advantages of debt-free living, you’ll see an increase in your credit score over time, which can open doors to future loans for a home or vehicle. Also, you will watch your savings increase long-term from no longer paying high interest rates on credit cards or previous loans after paying off the debts holding you back.
While becoming debt-free may seem overwhelming, it is absolutely possible – and empowering. There are plenty of strategies to help you get started, whether it's snowballing small debts, consolidating balances, or adjusting your spending habits. While there are many strategies for kicking existing debt to the curb, check out some of our tips for doing a debt detox.
One component that is often discussed with savings is an emergency fund. If one of your immediate thoughts when hearing of an emergency situation is the financial hardship it might bring, this is something you should be considering. Emergency savings act like a safety net when unexpected costs arise that are rarely planned for, such as medical expenses and home or car repairs. Having cash at the ready can save you from headaches later if an emergency does happen, which, of course, you hope it doesn’t.
Having funds set aside for emergencies or unplanned expenses can also help break the cycle of incurring debt, as you will not have to rely on credit or loans to move through the situation.
In any case, having a cushion of emergency savings brings opportunities to grow your wealth. You could choose to take advantage of investment opportunities or turn savings into your long-term savings goal into home ownership, starting a business, or putting money away for retirement savings. Learning how saving is essential for reaching these goals is something Addition Financial can help you with when strategizing to meet them.
In addition to emergency savings, it’s also important to build purpose-driven savings goals – whether it's for a vacation, education, or a major life milestone. Segmenting your savings into different buckets not only helps you stay organized, but it also makes your goals feel more tangible and achievable. Many financial institutions, including credit unions, offer tools like automatic transfers or dedicated savings accounts to help you stay on track. And even if you start small, consistently setting money aside builds both discipline and momentum. Over time, these habits can lead to greater financial independence, reduced money-related stress, and a stronger foundation for whatever life throws your way.
Budgeting overall will be your best friend if you are aiming to pay off debt while also setting aside money for your future. Dividing your earnings between needs, wants, and savings/debt will set you up for success. If you have multiple debts and one has high interest, it’s important to make that a priority because chipping away at your priciest debts first reduces what you'll pay in interest in the long run. This is also known as the “debt avalanche method,” which saves you both money and time. A lower interest rate will be less of a hit as monthly payments come in. On the other hand, the “debt snowball method” is a different strategy that goes for quick wins by paying off smaller balances first if you want to work your way up when juggling multiple debts.
By putting even a small amount of money into your savings account at a time, you are building for a brighter future with growth through the power of compound interest. As you pay off debt, you’ll have more to contribute to saving, pushing you closer to your goals. While both paths on their own come with advantages, finding the right balance should be your ultimate goal toward financial freedom.
So you might be asking yourself, what small changes could help you chip away at debt and build savings at the same time? Small, consistent changes can make a big impact on both paying down debt and growing your savings. Start by creating a simple monthly budget to track where your money is going – you might be surprised at how much you can redirect with just a few adjustments.
Try automating a small transfer to savings each time you get paid, even if it's just $10 or $25; over time, it adds up. At the same time, round up your debt payment because even an extra $20 a month can help reduce interest and accelerate your payoff timeline. Cut back on non-essentials like carryout dinners or subscription services, and funnel those savings toward your financial goals. The key is consistency – by making small, intentional choices, you can build momentum toward financial freedom without feeling like you’ve gotten in too deep.
Addition Financial offers personal finance advice and resources to help you find this middle ground and can tailor strategies to your unique financial situation.
Since there are different types of debt, here is a quick rundown of some of our other helpful resources that speak to some specific (but common) debt situations, and check out more in the “Debt Management” section of our blog:
Addition Financial offers a variety of solutions for debt management, including financial counseling, debt consolidation, and low-interest loans. When it comes to saving plans, we’ll help you explore the different types of savings accounts you can open, from emergency savings to investment accounts. Let’s find success - together! Our team is available to help you make the most informed financial decisions about debt and savings. Ready to take the first step?