Should I Pay Off My Debt or Save My Money?



So look, here’s the problem.

You’ve got $10,000, $50,000, etc. in debt, and you know you should pay it off.

But at the same time… you also want to build a savings.

You want to have the freedom to travel, buy a home one day, or pay for schooling or training to transition to work you love more…

What the heck should you do??

Good news!

You can do each thing you want.

You just need a few key learnings to piece the puzzle together.

And yes, this works if you have a high five or even six figure amount of debt.

It works if you’ve never paid more than the minimum before in your life.

And it works if debt scares you out of your pants.


Because the ultimate goal of this article is to destress and improve your outdoor loving life.

And the process we're going to outline does just that, while also taking care of your debt.

Here’s how:

Let's break these out step-by-step!

free course boos your stash

Become Cash Flow Positive

The first thing you do in freedom seeking finance is become cash flow positive.

All this means is that you keep some of what you make.

Income - Spending = Net Income


And you do that +$1000 every single month.

One of the most helpful things you can do to actually know if you’re up and cash flow positive is to implement Mint’s budgeting software.

I built a step-by-step plan for how to get set up with Mint here, so you can track that your cashflowing positive like your mom track steps on her Fitbit.

The other thing you should know here is the importance of your savings ratio in how fast you’ll reach mailbox money (when checks just come to you in the mail and cover your life expenses) to help you decide how much to save each month.

Ok, once you dial in your first cash flow positive month — then it’s on to deciding how much to put toward your savings and debt.

Build a 3 Month Cushion

The first thing you want to do is have some breathing room.

If you get hurt, lose your job, whatever, it’s important you have some cash stashed as a buffer so you don’t get forced in to doing anything you don’t want to do.

This whole thing is about you maintaining “the choice” right?

Because without a stash, you loose the power of the choice and your freedom.

No thank you!

So the first thing we recommend is putting 100% of your net income into a savings account.

And do that until you have 3 months worth of money stashed in that savings account.

So, spend $2000/mo? Then get $6000 in your savings balance. Spend $3000. Then stash until $9000.


We picked 3 months because we’ve found that to be a big enough buffer in case things went haywire. It’s tempting to keep a stash with a smaller balance, but things happen…

If you think you’re life doesn’t ever have unexpected moments, then we think you don’t have a pulse. 😜

So shoot for 3 months.

Once you have that 3 month cushion, then it’s time to rethink your split.

(We just had it at 100% to savings / 0% to debt).

Figure Out Your New Split via a Projectionn

So there’s 100 ways you can split it…

100 to savings vs. 0 to debt | 0 to savings vs. 100 to debt

The goal is to nail it for your situation, and that takes understanding how the wheels of your system turn.

Luckily your system has only 2 wheels: Income and Spending. That’s it.

Project Your Income

First up we want to look into the future of your income.

Do you have a stable income? Or does it fluctuate?

If you have a stable income, figure out how much you take home each month. (That’s your income after taxes.)

If you’ve got a volatile income, then you need to view your income over a longer period to smooth out the numbers.

For you, think about looking at how much you’ve made over the last 3 months or more. Then use that to find your average monthly income.

The goal here is to figure out your average income.

And the last thing you need is to be perfect. Just get close. That’s good enough.

Project Your Spending

Next up, we want to look into the future of your spending.

How much do you spend on average each month? Once you know that then ask yourself...

"Do I have any big purchases coming up in the next 4 months?" Write those out.

(Think airplane tickets, anniversary night out, weekend trips, etc.)

Add those together and you get your average monthly spending over the next four months.


Now that you have both your future average income and average spending, you know your future average net income.

That net income is what you’ll either use to build the savings or pay off the debt!


Make sure to count those one time big purchases!

If when you think about one of them and it kinda flips your stomach a bit, then you should definitely rethink the purchase.

Can you get the same outcome at less of a price? Can you get creative or do things different to get the same enjoyment for a less expensive cost? Be flexible!

Mold it so you are 100% stoked with the up coming purchases, AND also with the amount you’ll be able to stash each month (your net income).

Find the best thing for you money and enjoyment-wise.

And I recommend not succumbing to the norm of saving 5%, even 20% of every paycheck. If you actually want freedom, you’ll be aiming to reach a 50% savings every month.

Hint: You'll probably recommend this too once you understand the impact behind your savings ratio. :)

Make a Simple Projection

With those, you can make some long term projections.


If my net income is $1k per month, and I put 50% to my debt and 50% to my savings, how much will I have in both accounts in 3 months, 6 months, 1 year, etc.?

As you put together these projections, make sure to account for the interest rates on your debt.

$1k/mo of net income doesn't mean $12k of debt with a 9% interest rate will be paid off at the end of the year.

Actually, it's pretty far from it.

Accounting for your interest rate becomes more and more important the higher the interest rate and the larger the debt.

Build out a spreadsheet or just write it out on paper.

Here’s the one we use with the students in our advanced course — Discover Your Hidden Green.


Why do we show you that?

Because we know if you're serious about becoming stress free of debt and having the security of a savings, you'll enroll in the course.

If you can’t do a projection, then follow the general guidelines at the bottom of this article and error massively on paying off your debt.

Hit 6 Month in Savings? Rethink Your Split.

The next pit stop happens when you have 6 months in your savings.

When you've got that much in your savings, you have a pretty comfortable amount of liquid cash to fall back on in case something goes wrong.

And with that added comfort comes the confidence to kick some more ass in your situation.

What I mean there is once you have six months in your savings, you need to start thinking, "Where is the most effective place to put my net income each month."

For example, if you could put your net income somewhere that would grow vs somewhere that doesn’t grow at all which would you choose?


Obviously, the place that grows.

Lose or Make Money?

Now here’s the real question, would you rather put your net income in some place that is guaranteed to lose you money?

Or would you rather put it some place that is guaranteed to not lose you money?


You’d pick the one that’s guaranteed to not lose you money, duh.

So where is that?

Well, if you have a net income of $1000/mo (you should work to do this or more!), you get to decide whether to put it in a savings or put it toward your debt.

When you choose to put $1000 toward your savings rather than your debt, you let your debt grow.

Think for every $1000 you decide to put into your savings rather than use to pay off your 10% interest debt, you’re AUTOMATICALLY losing $100.


(Because that $1000 of debt, you chose not to pay off, continues to grow!)

So every $1000 to your savings is actually only $900 to your savings. F— that.

On the other side, if you put your $1000 to your debt, you are keeping that $1000 of debt from continuing to grow.


So every $1000 you put toward your debt, you are keeping it from stealing another $100 from you!

Would you rather make $1000 and have it turn into $900 or have it stay at $1000?

It’s a no brainer.

If you’d pick the $1000, then you want to optimize your net income toward your debt!

Like majorly. Like 100% toward your debt, since you have the comfort of your six months of savings

What about investing?

Fair question.

So if there existed an investment with a guaranteed immediate return of 10% (or that matches the highest interest rate on your debt), then yeah, it’d be worth considering.

But the things is…

There is no investment out there with a GUARANTEED IMMEDIATE return of 10%.

And by guaranteed, I mean — the second you put your money in it — there is no chance it will be more, no chance it will be less. It’s concrete 10%.

The only place you’re going to get a guaranteed immediate return like that is in paying off your debt.

Now when we get into interest rates around 1% or less, then it may be worth re-thinking your split.

But anything above that, you’re just not going to find a guaranteed immediate return on investment like what happens when you put your money into your debt.

Pay off your debt is literally your best possible investment.

Extra money laying around?

So say you have some extra money laying around.

You’ve been wondering if you should use it to pay off your debt, but just haven’t made the decision because debt sucks and you hate thinking about it.

But you’ve read this far, and you’re now committed to turning your life into pure freedom.

So let’s think.

If you have $10k of debt and $20k in a savings.

That $10k of debt is growing negatively at 10% (or whatever the interest rate is).

While that $20k is sitting stagnantly.

Let’s take half of the savings and compare it to the debt. So that’s $10k in savings and $10k in debt.

In one year your savings is still at $10k. And in one year your debt is at -$11k.

Would you rather lose $1000 or not lose $1000?

Obviously you’d rather NOT lose $1000!

So it’s time to act!

If you used that $10k to go towards your debt, you won’t lose that extra $1000.

And as long as you keep 3-6 months of that money in the savings account, then you still have the cushion for freedom!

For example, if you spend $2000/mo, then you keep $12k (because that's 6 months worth of your monthly spending) and use $8k to pay down the debt.

Or you keep $10k and use the difference ($10k) to go toward your debt.

It’s all about your confidence in being able to rebuild that savings in the months after the repayment.

Just don’t go lower then 3 months left in the saving.

Got it? Good!

Which debt do I pay off first?

Good question.

So here's the question again: Would you rather lose more money or less money?

Obviously you’d rather lose less.

So you pay off 100% of your highest interest rate debt first.

Then the second highest interest rate next. And continue to the third, fourth, etc. until it’s completely extinguished.

Just make sure to make the minimum monthly payments toward all your debt while you pile drive through the highest existing debt.

A General Rule of Thumb for Debt Repayment

If you skipped your way down here, you should take the 7 minutes to read everything above.

It will be one of the best investments of time you may ever make in your life. Seriously. Go up and take the time to read it.

If you read your way down here, then you are probably frothing to pay off your debt and don’t even need to read this.

But here’s the quick overview on paying off debt by interest rates:

5% or more: Pay it off like your life depends on it. The growth on this will seem slow at first.

But one day (think after a few years of putting it off) you will wake and it will be going so stupid fast you’ll want to get in a time machine and pay it off on what you remember is today.

If you don’t believe me use this calculator. Just type in your debt, the interest rate, and go every 3 years watching it steal your freedom.

Oo! I have shivers just thinking about it.

1% - 5%: Do the same as above.

0% (like a family loan): Pay it back so you can actually start saving.

If you have a savings of $10k and owe $20k at 0%, you don’t even have a dollar to your name! (-$10k)

All that money is to your family member's name. Or worse, to some penguin-suited banker's name sitting in a white-lit penthouse suite.

In the end, the goal is to get through your debt and always have a savings available in case anything goes wrong.

These outdoor loving freedom seekers crushed their debt like it was nobody’s business. Do it like them! 

Paying Off $18k of Debt While Getting Paid to Travel the World
Paying Down $25k of Student Loans Fast Working a Restaurant Job
Paying Off $30k in 1 Year While Making $10/hr

Follow their lead with the steps laid out above, and turn your debt into freedom. There’s no better feeling!

Or join our free course below to really learn how to start boosting your stash each and every month.  

personal finance free course



Ryland is a writer, outdoorsman and surfer. He's also the founder of The Hidden Green.


Keep reading. You won't regret it.