If you've ever Googled this question, you've probably gotten one of two answers: "Always pay off debt first!" or "Always have an emergency fund first!" The truth? It depends on your situation — and the best approach is usually a hybrid.
The Case for Paying Off Debt First
High-interest debt — especially credit cards charging 20%+ APR — is a financial emergency in itself. Every month you carry a balance, you're essentially paying a penalty for past spending. No savings account or investment will consistently earn you 20% returns, so mathematically, attacking high-interest debt first makes sense.
When to prioritize debt:
- You have credit card debt above 15% APR
- You're paying only minimums and the balance isn't shrinking
- The interest is compounding faster than you can save
The Case for Saving First
Here's the counterargument: if you throw every dollar at debt and then your car breaks down, you're right back on the credit card. An emergency fund isn't just a savings goal — it's a debt prevention tool.
Without a cash buffer, every unexpected expense becomes new debt. You end up in a cycle of paying down and racking up that never ends.
When to prioritize saving:
- You have zero savings and rely on credit for emergencies
- Your income is variable or unstable
- You've paid off debt before only to end up back in it
The Hybrid Approach (What Actually Works)
For most people, the smartest play is a split strategy:
Step 1: Build a starter emergency fund of $1,000–$2,000. This is your bare minimum buffer — not your full emergency fund, just enough to keep you off the credit card when something comes up.
Step 2: Attack your high-interest debt aggressively. Use the snowball or avalanche method (we break both down in our Debt Payoff Playbook).
Step 3: Once high-interest debt is gone, build your full emergency fund (3–6 months of expenses).
Step 4: Redirect what you were paying toward debt into investments and long-term savings.
The Bottom Line
Don't let perfect be the enemy of good. Starting with even a small emergency cushion while aggressively paying down debt puts you ahead of 90% of people who are doing neither. The worst move is analysis paralysis — pick a strategy and start today.
Want the full framework? Download our free Debt Payoff Playbook for a step-by-step breakdown of the snowball and avalanche methods.