Paying Off Debt vs Saving: Which Strategy is Right for You?

When it comes to paying off debt vs saving, the decision can be especially nuanced for women striving for financial stability. Should you focus on eliminating debt or building an emergency fund? The first step is to assess your goals and current financial situation.

Factors such as increased caregiving responsibilities, longer career interruptions, limited access to financial education, and the gender pay gap complicate this decision. According to Payscale’s annual Gender Pay Gap Report (GPGR) for 2024, the controlled gender pay gap, which measures “equal pay for equal work,” indicates that women earn $0.99 for every dollar earned by men in similar jobs with comparable qualifications. 

While this reflects progress, it highlights ongoing challenges, especially with the uncontrolled gender pay gap of $0.83. The uncontrolled gender pay gap measures how women are compensated compared to men across the workforce—without accounting for job titles or qualifications. This reveals an opportunity gap where women earn 17% less in collectively lower-paying positions, indicating systemic inequities in access to higher-paying roles.

For women, finding the right balance between debt and savings is crucial. In this article, we’ll share strategies that support your financial security while allowing you to build a safety net without compromising debt repayment.

Saving vs paying off debt

Deciding between paying off debt vs saving requires thoughtful consideration, especially for women navigating unique financial challenges. 

“Money isn’t always the primary issue when it comes to debt—it often starts with mindset,” says financial coach Becca Heissel. “Many women feel ashamed or embarrassed by their debt, which can hold them back from taking control.” 

Before deciding, take a closer look at your financial situation, priorities, and long-term goals. Ask yourself:

• What types of debt do I have? High-interest debt, like credit card balances, often takes priority. Paying these off quickly can save significant money on interest.

• Do I have an emergency fund? “Regardless of your situation, developing the habit of saving is crucial,” Heissel says. “I recommend saving 10% of every paycheck—this can go into an emergency fund or what I like to call a ‘wealth accumulation account.’”

• What are my long-term goals? If you’re planning for retirement, saving for a home, or anticipating future caregiving needs, you may need to balance debt repayment with savings efforts.

When it makes sense to pay off debt—and how to do it

In some cases, focusing on paying off debt is the most strategic move:

• When you have high-interest debt: Credit cards and payday loans often have high interest rates that can quickly grow. Prioritizing these can reduce overall costs and free up cash for other goals.

• When you have stable income: If you have a reliable and sufficient income stream, paying down debt faster can help you reach financial independence sooner.

• When you're approaching a life milestone: If you’re planning to take a career break for caregiving or other personal reasons, paying off debt beforehand can reduce financial stress during those times.

Tips for paying off debt:

1. Create a budget: Outline your income and expenses to determine how much you can allocate toward debt each month.

2. Use the avalanche or snowball method: The avalanche method targets high-interest debts first, while the snowball approach starts with the smallest balance. Choose the strategy that best fits your motivation and goals.

3. Automate payments: Set up automatic payments to ensure you’re consistently paying down debt and avoiding late fees.

4. Consider extra income: If possible, take on side gigs or freelance work to increase income and accelerate debt repayment.

5. Negotiate interest rates: Contact lenders to request lower interest rates or explore balance transfer options to reduce your overall debt burden.

When it makes sense to save money—and how to do it

Saving might be a better choice under certain circumstances, especially for women navigating financial uncertainties.

• When you lack an emergency fund: Prioritize building a cushion for unexpected expenses like medical bills or job loss. Women who may experience longer job searches or career interruptions can particularly benefit from a solid emergency fund.

• When planning for retirement: Women generally live longer than men, meaning they need more savings for retirement years. Investing in a retirement account, such as a 401(k) or IRA, might be a smarter option than paying off low-interest debt.

• When preparing for major life changes: For milestones like buying a home, starting a business, having a child, or pursuing education, saving may take precedence over debt repayment, especially if debt interest is low. Building a foundation for these events provides flexibility and security.

Tips for saving money:

1. Set clear savings goals: Define what you’re saving for—emergencies, retirement, or a major purchase—to create a focused plan.

2. Automate your savings: Schedule automatic transfers to savings or retirement accounts to build funds consistently.

3. Take advantage of employer benefits: If your employer offers 401(k) matching, contribute enough to get the full match—it’s essentially free money for your future.

4. Cut unnecessary expenses: Review your budget and identify areas where you can reduce spending, directing the extra funds to your savings goals.

5. Consider a high-yield savings account: “These accounts offer flexibility, security, and a better return on cash you may need readily accessible,” Heissel says. High-yield accounts allow your savings to grow at a faster rate than traditional accounts, helping prevent surprises at tax time.

Strategies for paying off debt and saving

Striking a balance between saving while paying off debt can help you stay financially secure without sacrificing future goals. Here are some strategies:

Consolidate high-interest debt

Consider a debt consolidation loan to combine multiple high-interest debts into one with a lower rate, making repayment easier and more manageable while freeing up funds for savings.

Set up sinking funds

Create separate accounts for specific financial goals, like a vacation, a new car, or medical expenses. “Knowing what you want financially and personally creates a roadmap for your goals and guides your spending and saving decisions,” Heissel says. This approach allows you to save while managing debt without feeling overwhelmed by larger expenses.

Use windfalls wisely

 If you receive a tax refund, bonus, or inheritance, allocate a portion to debt repayment and the rest to savings. This way, you tackle both priorities without compromising one for the other.

Negotiate with creditors

Reach out to creditors to request lower interest rates or adjust your payment plan. Reducing interest costs can free up more of your budget for savings.

Invest in digital apps 

Apps like Acorns and Robinhood make it easy to start investing with minimal funds, even while managing debt. Acorns round up purchases and invest the spare change, while Robinhood offers commission-free trades, helping you grow your savings gradually without large commitments.

Leverage employer benefits

Take advantage of any debt assistance programs your employer offers, like student loan repayment benefits, while also contributing to retirement accounts with matching options.

Review and adjust your plan regularly

Assess your financial progress every few months to adjust your approach as needed, ensuring you're effectively balancing debt repayment and building savings.

Explore women-specific savings accounts 

Some banks and credit unions offer accounts tailored for women, featuring perks like higher interest rates or financial education programs designed for long-term growth.

Invest in financial education

Enroll in courses or workshops to deepen your understanding of investments, retirement planning, and financial management. Being informed leads to better financial decisions.

Seek personalized financial advice

Consulting a financial planner who specializes in women’s finances can help you create a plan that considers unique factors like career breaks or long-term goals.

Read this next: 9 Financial Tips Every Woman Should Know to Protect Themselves

FAQs

Should I use my savings to pay off credit card debt?

Using your savings to pay off high-interest credit card debt can be a smart move, but keep a small emergency fund for unexpected costs. Women, especially those managing households, should ensure they maintain a safety net for unplanned expenses.

Can I invest while paying off debt, or should I focus on one at a time?

“Yes, you should invest while paying off debt,” Heissel says. “It’s not an either-or situation; it’s about managing both with consistency and strategy.” This balanced approach lets you reduce debt and build wealth simultaneously. “Set a consistent monthly investment,” Heissel says, “to benefit from compound growth.” 

This way, you stay on top of debt while building wealth, which strengthens your financial position. Finding a balance based on your financial situation is often the most effective strategy.

Is paying off debt better than investing?

If you have high-interest debt, like credit cards, paying it off first may be a good idea, as it provides a guaranteed return by saving on interest. For low-interest debt, investing in retirement accounts, such as a 401(k) or IRA, may yield higher returns over time. Finding a balance based on your financial goals is often the most effective strategy.