How to pay off debt and save at the same time

Discover smart strategies to pay down what you owe while building a secure financial foundation — without sacrificing one for the other.

If you’re struggling with a growing debt load, you’re not alone. American households collectively hold $18 trillion in debt, including mortgages, student loans and credit card balances. If you’re juggling debt and wondering whether you should focus on paying it off or putting more into savings, the answer isn’t always obvious.

For many folks, the best approach is to do both. While paying off high-interest debt is essential for financial freedom, saving — even in small amounts — should be a priority too. It’s not just about managing today’s finances; it’s about setting yourself up for long-term security.

“The biggest challenge for most people is having enough discretionary income to tackle both debt repayment and savings,” says Haitham Suleiman, a goals coach for U.S. Bank. “But with the right strategies in place, you can manage both simultaneously and create balance in your financial life.”

Here’s a breakdown of actionable steps you can take to work toward both goals. 

Put borrowing money on hold

The first step is simple: Avoid taking on more debt. Adding new debt while trying to pay off existing balances only makes things more difficult. If you’re reaching for a credit card or loan, take a moment to evaluate whether the purchase is truly necessary. If you’re relying on credit to cover essential expenses, it’s a red flag to revisit your spending habits and look for areas to trim back.

Cutting back on unnecessary expenses (even if you don’t have credit card debt) is a great way to boost the amount of cash you can put toward your savings and debt repayment goals.

Start saving for emergencies

It might sound counterintuitive, but saving for emergencies, even when you have debt, is crucial. Building even a small emergency fund can prevent you from relying on credit cards or loans in times of need — and it helps you stay on track with your debt repayment goals. Aim for setting aside $500 to $1,000 as an initial safety net.

Set up monthly automatic transfers from your checking account into a high-yield savings account earmarked for emergencies only. “Automatic transfers help strengthen savings habits and remove the temptation to spend your money when it is readily available,” says Suleiman. 

Pay less interest

One of the smartest ways to free up money for both saving and debt repayment is by lowering the amount you’re paying in interest. The lower your interest rate, the faster you’ll chip away at your balances.

Here are a few ways to reduce what you owe in interest:

• Negotiate your credit card interest rate. Ask your issuer for a lower rate. It’s easier than you think: More than 75 percent of cardholders who made this request recently were successful. 
• Consider debt consolidation. “Debt consolidation allows individuals to combine multiple debts into one payment with a potentially lower interest rate,” says Suleiman.
• Use a balance transfer card. “Another strategy is getting a balance transfer credit card that offers a zero percent interest rate for an introductory period,” says Suleiman. “This, however, will only provide short-term relief.” 

Consider your approach to debt repayment

Once you’ve put a hold on accumulating more debt and started putting something aside for an emergency, it’s time to address your existing debt. It’s best to prioritize high-interest debts, such as credit card balances and personal loans. “Doing so reduces the total amount of interest paid over the life of the debt,” says Suleiman, “which can free up that monthly payment to be used to help grow your savings.”

One way to do this is using what is known as the avalanche method. For this, focus extra payments on your highest-interest debt first while making minimum payments on others. Once that debt is eliminated, start chipping away at your next-highest-rate loan. Continue this process until all those high-interest loans are gone.

While the avalanche method is the most efficient, some people struggle to stay dedicated. Those folks might consider the snowball method. With this approach, you use your extra cash to pay off your smallest balances first, while still paying the minimums on the other loans. You may pay more interest with this method, but you’ll likely eliminate the first few loans faster, which will give you a psychological boost.

“Celebrating small wins can help keep the momentum going,” says Suleiman, “whether that’s paying off a small credit card balance or reaching a specific savings goal.”

Start saving more

Once you’ve paid down some of your high-interest debt, you can start thinking more seriously about your future savings goals. Saving for retirement, a home or a child’s education can seem like distant goals when you’re overwhelmed with debt, but once you build the habit of saving, you’ll find that it’s easier to scale up.

Here’s how to take it further:

• Maximize employer retirement plans like 401(k)s, especially if your employer offers matching contributions.
• Open additional savings accounts for specific goals — whether it’s a vacation fund or a down payment on a house.
• Boost your savings rate if you get a raise or any extra income, such as a tax refund. 

“As you go through this journey, continue to ask yourself why you are working toward specific goals,” says Suleiman. “This will help you stay motivated and more in control of your money.”

Discover more ways to manage debt.