How do I pay off debt and save at the same time?


If you have existing debt like credit cards or student loans, you may wonder if you should pay it off first or save for retirement. While everyone’s financial situation is different, many experts recommend doing both at the same time. Here’s one approach to consider.

Find money in your budget

  • Look for expenses to reduce or eliminate to make room for saving and paying off debt. Use our budgeting tips and worksheet to get started. Consider optional costs you can cut back on, from streaming services to dining out.
  • Calculate the total you can reduce your expenses by. If you shave $200 from your monthly expenses, that’s $200 you can apply toward saving and debt.

Take one step at a time

  1. Consider building an emergency fund before paying extra money toward debt. That way, you won’t go into further debt if unexpected expenses occur. Initially, you might put most of your savings into an emergency fund. Keep going until you have enough to cover 3-6 months of expenses.
  2. Contribute to your employer-sponsored retirement plan while building your emergency fund, even if you start small. The sooner you begin, the more you can benefit from compounding — your earnings being reinvested to generate more earnings — which boosts your savings with less out-of-pocket money. Plus, you can increase your contributions anytime.
  3. Once you’ve established your emergency fund and started your retirement contributions, focus on paying off debts. Prioritize those with the highest interest rates to pay off debt fastest and save the most on borrowing fees. Tackle smaller ones first if you’re motivated by seeing quick results. Either way, as you pay off each debt, use the amount you’d been paying on it toward another one.

Once you’re out of debt, you can decide what to do with the extra cash — and face the future with more confidence in your finances.

Ready to put savings to work? Enroll in your retirement savings plan or contribute more today.