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For those who won't accept "it depends" as an answer

Round-Up Resource: Do I Invest, Save, or Pay Off Debt?

Updated: Feb 18, 2019

Have you ever found yourself wondering, "Should I pay off debt? Or should I save? Or should I invest? So many decisions!" Here is some expert advice on how to tackle it and come up with the right strategy that works for you.




It's a question I get asked a lot.


“I’m supposed to be saving, investing, and paying off debt… how on earth do I decide what to do first? If I have $100, should i put all of it towards one objective? Or how do I split it up?”


It's a tricky question for sure, and I try to answer it the best I can, but I decided it was time to rope in some experts. I asked the people I look up to the most financially for their take on the question, and got some amazing responses.


TLDR; Build up emergency savings, then sprinkle between debt and investing, depending on your interest rates (ie, prioritize high interest debt first, but don't completely neglect investing).


Of course it's not always that simple, and for those of you who really want to dive in "What's the best thing for me to do with my money?", keep reading and enjoy this collective round-up resource where I polled some of the smartest finance minds I know to get their advice on how we can all make better financial decisions.


Ready to get started??


Ashley Feinstein Gerstley

The Fiscal Femme


Rainy Day Fund. I think it's really important to have some money in the rainy day fund first and foremost. Yes, even if you have credit card debt. That's because if something were to happen and we don't have any money saved up, we'd have to borrow the money. Also, when we start saving, we start building that habit or strengthening saving muscle which is really important.


High Interest Debt. Then I'd prioritize high interest rate debt like credit cards.


Long Term Investing, but balance with your short term needs too. As far as prioritizing cash vs investing, it's important to think about when you plan on using the money. Investing is for money we plan to use in longer term. Our rainy day fund or the money we plan to use for this summer's vacation, can all be in our online savings accounts. Build the rainy day first and foremost and then we can start putting money aside for other goals.


Stefanie O'Connell

Personal Finance Expert


Emergency Savings. After meeting your essential expenses, I recommend prioritizing emergency savings - building a cash cushion with at least one month's worth of expenses in a dedicated savings account - before splitting your efforts between multiple financial goals.


Start incorporating other goals. Ideally, you want to get your emergency fund to cover around 6 months' worth of living expenses, but once you have one month covered, I think it's okay to start incorporating other financial goals into your focus - for example, paying off high-interest debt, maxing out your 401k match, etc.


Joe Saul-Sehy

The Stacking Benjamins Podcast


The key to picking the right priorities lies in examining two factors: interest rates and time frames.


Let's start with time frames. If you are saving for a specific event and the time frame can't be changed, then you do what you must. Divide the goal into monthly investments and begin saving toward it. The other two areas (emergency fund and debt paydown) will have to follow behind.


But if the time frame can be changed (you want to purchase a car but the current ride is sufficient for now), then we can have more fun.


The emergency fund, which is the most boring part of saving, should always come first, at least until you've accumulated 2x the biggest emergency you can imagine. While this sounds boring, emergency funds are the only way to ensure that if life brings more trouble, that you don't have to use debt to climb back out. (When I was a financial planner I'd meet with people who'd paid down debt over and over again only to get back into debt because they never built an emergency fund.


Finally, there's debt. I personally prefer to wipe out debt as quickly as possible, but I understand the feelings of people who prefer to look at the interest rate on debt first before deciding how to proceed. If I can pay back debt at a low interest rate and stretch out my repayments so that I can focus on investing, the math shows that I'll come out ahead if the interest rate I earn is higher than that I'm paying out. That said, from my time as a financial advisor, paying down debt early gives you confidence and leaves you able to focus on only investing, instead of multiple directions for your money. Clearly, I can agree with both positions on this issue, which makes personal finance so damned personal!



J Money

Budgets are Sexy


Do whatever excites you the most! You're much more likely to stick with it than doing stuff you're just "supposed to do" - even if it's mathematically better.


Yes there’s a financially “correct” answer to most of these which of course you have to factor in, but if you’re anything like me* you get a LOT more accomplished when you’re actually excited about what you’re working on vs looking at the numbers only. I can pay off debt like a mother when I’m in the mood, and alternatively, I can turn around and save-save-save as well if my priorities and interests change over the months. But it has to motivate me enough to take action!


Jean Chatsky

Financial Editor of NBC’s Today Show + Best-Selling Author


I have a few tests that I use to answer this question.


(1) The numbers test. Much of money boils down to math. What's the return you're getting on that money? Are you paying off a credit card at 24.9%. That 25% return on your money -- guaranteed -- is going to be tough to beat unless you're getting matching dollars from a 401(k). Are you putting it into a diversified portfolio that'll likely earn 8 percent over time? That's better than the 2% you'll get on savings (and that's if you shop around!). But there's also…


(2) The goals test. What's this money for? Necessary expenses are an important box to check, but they're not the only one. Where you put this money has as much to do with what specifically this money is for as it does with the numbers. If your current priority is a downpayment for a place, and that's coming up within the next 18 months then putting the money into long term investments isn't going to do.

(3) The sleep test. Money is emotional. To try to pretend that it isn't doesn't work, so instead we have to respect that aspect. If you don't have any emergency savings, putting some of that extra money toward building a cushion is a smart move because it can prevent you from having to accrue credit card debt in the future. If you are worried the market is overheated and that is preventing you from getting through your day (or night) divert some money (5%, 10%, not everything) from stocks into safety.


Adebayo Fasanya

Dr Breathe Easy Finance


Here are my 12 toddler steps after reading multiple blogs and books over the years.


(1) Pay all credit cards

(2) Have the minimum required emergency fund >/= 1000 dollars.

(3) Refinance your loans

(4) Pay off any loan with interest rate >5%

(5) Utilize your employer 401k up to the match and if you have money left, then Invest in Roth IRA.

(6) Now pay off the rest of your debts

(7) Maximize your retirement savings

(8) Boost up your emergency savings to 3-6 months of living expenses

(9) Invest in your children’s future education

(10) Build wealth – Save 1/3 of your income or at least strive to. Go a little wild, diversify.

(11) Give – at any stage above too if able to

(12) Optional pay off mortgage




Josh Dover

Budget For Happiness


While all things depend on your appetite for risk, I advise that people prioritize in this order:

(1) Emergency fund, 3-6 months of expenses in cash in case you lose your job.


(2) Paying off debt, the faster you pay off debt the less you spend on interest. This is especially true for high-interest debt or debt that isn't backed by an appreciating asset (like an auto loan). If you can pay these things off quicker, your monthly expenses will be much lower. Getting to that is great, because then you have more cash each month for....


(3) Investing, typically in index funds where management fees are low and portfolio diversity is high (eg. Vanguard Total Stock Market Fund)

Another reason to consider paying off debt rather than investing is certainty. With a loan, you typically know exactly the return (not paying the interest rate) where as with investing you may lose money. One exception to this could be a mortgage where interest rates are typically very low and the underlying asset is likely to gain value. Paying off debt will reduce your stress and increase your sense of security, giving you more emotional capacity to make riskier investments in the future.



Majd Maksad

Status Money


1) High Interest Debt. As long as you’re paying interest rates above 10%, all your extra cash should go towards debt repayment. The reason is simple, your savings and investments are unlikely to yield 10% or more.


2) Savings. Once your high-interest debt is paid off (or refinanced at a low rate), your leftover money can go towards savings and eventually investments. The math is simple, but maintaining financial discipline for months and years can be challenging. This is why we built peer comparisons and cash rewards into Status Money – to keep you motivated to improve while tracking your progress and making helpful recommendations along the way.



Feeling more confident about these decisions?


I encourage you to connect with any of these experts, as they’re all incredibly friendly, helpful, and just generally amazing people that I’m so thankful to be connected with. Also, feel free to add your thoughts in the comments below. (Chances are if you still have a question, someone else is asking the same thing.)


PS - If you want to join a community where people talk about things like this all the time, subscribe to this blog, or join the Penge Waiting List.

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