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Have you ever been really desperate to get out of debt? I've certainly been there. When you're broke, this situation is pretty straightforward. You're just trying to keep your head above water. But it gets trickier when you actually have some savings. Do you use your savings to pay off the debt, even if that leaves you unprepared for an emergency? Or do you keep the savings, even if that means spending more on interest payments for your debt?

A couple of months ago, I got this letter from a 28-year-old man who had just spent every last cent paying off his debt. He wondered whether that was a foolish move.

Had he asked me before paying it off, I would have suggested that he keep at least a three-month emergency fund and not to touch any retirement savings (not sure if he did the latter). But I'm not sure that it rises to the level of foolish. Foolish to me would be spending your life's savings on risky investments or things you don't need. It does make me nervous when I think of what would happen if he encounters a financial emergency. But hopefully, with no debt, he'll be able to rebuild his savings quickly.

Is it a mistake to use 100% of your savings on debt? Or is getting out of debt the top priority?

Robin Hartill aka Dear Penny is a certified financial planner and a senior writer at The Penny Hoarder.

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I'm personally more risk tolerant, so I would personally use all my savings to pay off debt (I'm assuming you're talking about debt with an extremely high APY and not a mortgage where it's a few percent a year and part of normal monthly expenses).

Mathematically speaking, it's much better to not have debt than to have debt since debt compounds in the negative so quickly.

Though I'd probably only do this if I'm confident I can build up a 'nest egg' back within the next few months and bet on the fact that an emergency's not going to happen in the next few months.


There was a question from a member earlier about this and I responded to never use all of your emergency stash to pay off credit card debt, and I hold to that still. I related how that bit me once when I was younger--using all of my cash to pay off credit cards and get that monkey off my back. Well, shortly afterward, I had a serious emergency and then had to resort to a credit card! So no, I would never use 100% of savings to pay off credit card debt. Keeping cash for emergencies is also a priority, perhaps the major priority, as well as paying off debt.

I would pay off the debt. If I had an emergency, I'd use credit card if I didn't have cushion built back up. I see it this way - I'd rather be debt-free and risk having to charge on a credit card again. That would mean I'd be back in the same place so not so terrible in my opinion. Of course, if self-control is an issue, I might think differently.

I agree with much of what has been said here. Personally, I don't think it's a good idea to use your entire savings to pay off debt. Life comes quick and I know how things can quickly catch on fire, and you have no water (savings) to put them out. Although, i'm sure at this point this persons mind set is all in with regard to NEVER going back into debt. For some people this approach may be the mental kick start they need. I'm just not willing to take that kind of leap. History has shown me it's boot and kicked me in the arse far too many times! I'd opt for a more simultaneous approach here. Pay off debt with a littel extra  each month and save baby save!

Last edited by A.J. Young Jr

I would never advise someone to use all of their savings to pay off debt. What if an emergency arises? If there's anything I've taken away from the events of the past year and a half is that emergencies do arise, they are completely out of your control, prices can skyrocket, and you don't know when they'll end. People have lost jobs when they thought they worked in markets that their jobs were stable. Companies closed.

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