The Pros and Cons of Paying Off Debt vs. Saving More

When extra money hits your account—whether from a raise, tax refund, or trimmed expenses—it can be tough to decide what to do next. Should you throw it at your debt or build up your savings? The truth is, there’s no one-size-fits-all answer.

At LG&E Co. Credit Union, we’re here to help you weigh both sides so you can make the best financial move for your goals.

Paying Off Debt: The Case for Becoming Debt-Free

✅ Pros:

  • Build an emergency fund: Life happens. Savings can keep you afloat without needing to borrow.

  • Take advantage of compound interest: Even small, consistent deposits can grow over time in a high-yield savings account.

  • Reach short-term goals: Saving gives you options—whether it’s for a vacation, a home project, or a major purchase.

⚠️ Potential Cons:

  • Debt interest may outpace savings: If you’re saving at 2% APY** while paying off a 20% APR* credit card, your debt is costing you more than your savings is earning.
    Temptation to spend: Without clear goals, it can be easy to dip into savings unnecessarily.

Saving More: The Power of Financial Flexibility

✅ Pros:

  • Save on interest: High-interest debt like credit cards can eat into your budget. Paying it off reduces the amount of interest you’ll pay over time.

  • Less stress: Fewer bills mean fewer worries and more mental space to focus on other goals.

  • Boost your credit score: Lower credit utilization and timely payments can improve your credit rating.

⚠️ Potential Cons:

  • No cash cushion: If you put every extra dollar toward debt and an emergency hits, you may need to rely on credit again.

  • Missed savings growth: Money used for debt payments won’t earn interest in a savings or investment account.

So… What Should You Do First?

Here are a few guidelines that might help:

  • Start with an emergency fund of at least $500–$1,000 before focusing heavily on debt.

  • Pay down high-interest debt (like credit cards) aggressively while making minimum payments on lower-interest loans (like student loans or mortgages).

  • Save and repay in balance—split extra funds between both goals if your situation allows.

  • Automate your savings with LG&E Co. CU to make steady progress without thinking about it.

Need Help Prioritizing? Let’s Talk!

Everyone’s financial path is different. Whether you want to tackle debt, grow your savings, or both, LG&E Co. Credit Union is here to help you make a plan that works. Stop by or schedule a financial check-in with us today—we’ll help you move forward with confidence.


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