What's more important: rebuilding savings or paying down debt?

Hello, Tiller Money Community –

The economic fallout from the coronavirus crisis continues to unfold across America. The Census Bureau reports half of all Americans have lost income because of coronavirus. Needless to say, this crisis has wiped out savings and piled debt on millions of people.

However, as businesses slowly begin to reopen, some people are beginning to ask if they should prioritize paying down debt or building (or rebuilding) their emergency funds and other savings accounts.

On our blog, we’ve shared expert advice on this topic, which should be especially helpful for people financially impacted by the crisis.

But even in normal times, there’s a big debate about what’s better: paying down debt or building savings as quickly as possible:

  • By paying down debt, you free up credit lines and pay less interest fees.
  • By rebuilding savings, you have cash prepared for the next crisis.

What do you think? Should people focus on paying down debt, or rebuilding savings when they get back to work? What are you doing right now? Share your opinion below!

Paying down debt is the highest priority. With credit card interest over 20%, carrying a balance is a prison sentence because the interest accrues and the debt grows. Missing a payment costs you dearly with late fees, penalties, and more interest. So what a better way to increase your spending power by 20+% than to simply pay off your credit cards. It may seems daunting, but follow Dave Ramsey’s debt snowball and I promise there is a light at the end of the tunnel…and it’s not a train.


I agree, Chris. But actually, if you don’t have your emergency fund in place, that should come first. Having $1000 in the bank will take the edge off any future financial setbacks.


Truly one of the great debates of all time. And it all really depends on each person’s situation. I tend to agree that getting savings up to a minimum level (like $1000) is critical, then targeting debt. Saving three months of income while carrying heavy debt would be very difficult for many (maybe most) American families.


For me it’s no question. Pay down the debt on credit cards first. You free those lines of credit to be Plan A if you need cash for emergencies, and get rid of crippling interest costs (10%-29% apr). Then you can work on Plan B of having some savings (1% return if you are lucky). This only applies to debt that lets you keep the credit line, not to things like student loans etc. In those instances, you don’t keep that credit line after you pay it down so not helpful toward emergencies.


Rule of the Wealthy: Pay Yourself First!

If you do not have an Emergency Fund, you are setting yourself up for failure. It’s a fast way to ensure that you will be running your credit up once again when an emergency hits, not IF. Because trouble, trials, tests, etc. whatever you want to call them will come.

Those big banks will be okay. They can wait, even if it cost you a few extra dollars in interest. You build your emergency account as quickly as you can, then you can tackle the debt with the same fervor.

Those big companies get HUGE bailouts when things come tumbling down, but whose going to bail you out? So put your money away so you can take care of what is most important, your family, first.
Then go after that debt.

Now if you’re in this crisis and have a solid emergency fund and stable income, then by all means work on your debt. But if you feel like you may lose your job you may want to make sure you have at least 6-12 months living expenses (full emergency fund) before you go putting everything heavily into your debts. I’d make a plan to fully fund the emergency savings if things are volatile. And then plan out your debts to pay the minimums.

On the other hand if all is well and stable, income may even be on the rise in this covid19 situation for some people, then by all means pay your debts (making sure you have quick emergency fund and paying towards your fully funded emergency savings account).

People who already lost their jobs or laid off during covid19 should make sure they rebuild their savings first. The layoff was not even a warning, it’s an example. If people weren’t prepared the first go around, they better be prepared the next time. Covid19 only exposed that us Americans have been mismanaging our money and we all are operating with too much debt, businesses and individuals. So it goes without say, pay yourself.

The people I know who are not working, but doing just fine are always prepared for such occasions.

If you don’t build the nest, the eggs WILL fall out.


Here is a well respected website. Do both. Blake

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I agree with Edward that building up at least $1,000 (ideally at least 50% of monthly take-home pay) is important before starting to attack debt. With my financial coaching clients, I’ve found it’s very discouraging if you start debt payoff without any savings, then immediately have an unexpected expense and have to put it on a credit card. In my humble opinion, keeping that $1,000 minimum balance should be priority #1 and paying down high-interest debt should be #2 :slight_smile:

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What a great thread. I read this nodding with many of these comments. @rashida and @vprasad217 and @chris.larson1967 all point to the fact that there’s a psychology at work here that is as important as the hard numbers in the spreadsheet. Making incremental progress and avoiding setbacks is key to maintaining that “I can do this” psychology.

Consumer debt is insidious, it competes closely with the emergency fund. That said, it’s also important to note that student loans and mortgages can often wait. That’s a much friendlier kind of debt. Good to pay off too, but after the emergency fund is built.

@peter I think you nailed it. The “I can do this psychology” is critical. Tiller really helps my financial coaching clients achieve this mentality, so a huge thanks to you and your team!

Specifically, I love using Tiller to create a customized “Goals” tab for each client that highlights their progress over time and their expected success date for each goal. Clients enjoy seeing their progress over time, especially when it’s depicted visually or shows the expected completion date getting earlier.

Most people get constant negative feedback on their finances, so it’s crucial to be able to provide them with outsized positive reinforcement when they’re doing well!

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@vprasad217 I love it - a Goals sheet! We are actually working on ways to better support our customers with goals. My colleague @randy started this thread here on the topic Help Workshop a Savings Template Concept If you think there are elements of your Goals sheet that would benefit others as we bolster our goals tooling, I’d love to see a copy. (peter@tillerhq.com)

@peter I just checked out the Savings Template demo and it looks fantastic! I look forward to potentially using it with my clients in future.

My Goals sheet is still a work in progress, but the part that my clients enjoy the most is seeing their “success date” and “% to goal” really big at the top. I got the idea from the massive bar charts they use during school fundraisers to indicate progress. I focus on tracking progress towards one “primary” goal at a time because clients seem to find it more motivating.

Here’s an anonymized screenshot of the header of my (relatively manual) goals tracker. For my clients, this header is where the magic happens and people get excited.