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Saving money, paying down debt, and investing are all smart and responsible financial moves, and doing any of these can be a great way to take control of your financial future. But sometimes, deciding which to turn up over the others can feel like a tricky balancing act. While there may not be a one-size-fits-all solution, that’s a good thing — because everyone’s financial situations are different, and you should fine tune how you manage your money in a way that hits all the right notes for you.

To figure that out, start by weighing these considerations, so you can create your own harmony between saving, investing, and paying off debt.

What kind of debt do you have?

  • “Good” debt, like that from student loans or a mortgage, usually has lower interest rates and can be repaid slower.
  • “Bad” or high-interest debt, like from credit cards, should typically be paid off ASAP.

It’s important to recognize not all debt is created equal. Some kinds of debt, like student loans or a mortgage, are typically considered “good” debt. It can be seen as an investment in your future and is often paid back over a long period of time. “Good” debt usually has relatively low interest rates, especially compared to other kinds of debt. You might also qualify for certain tax benefits, depending on which type of “good” debt you have.

Credit card debt is a form of “bad” debt. Like with any debt, the slower you pay it back, the more interest charges you’ll accrue — the difference here is that credit card debt tends to have higher interest rates. This makes paying it back even more expensive and difficult, as the amount you owe continues to rise. Plus, unpaid credit card debt can have a stronger negative affect on your credit score — which can make it harder to qualify for loans and can cause you to receive higher interest rates for loans you do qualify for.

By categorizing your debt, you can better decide if you need to pay it off as soon as possible (bad debt) or if you can strategically pay it off over time while simultaneously saving and/or investing (good debt).

What is your rate of interest vs. rate of return?

  • Decide between paying back debt or investing in the market by comparing the interest you’d owe vs. returns you could generate.

If you have extra cash in your monthly budget, you may be deciding between whether to invest it or use it to pay down debt. One factor that can help you make this decision is comparing your debt’s interest rate to your investments’ average rate of return. If, for example, you have a car payment with a 4.5% interest rate and your investments make an average 7.5% return in the long run, it could make sense to prioritize investing your extra cash. But if your debt is more costly than your potential returns, you may want to focus on eliminating that first.

Do you have an emergency fund?

  • A healthy emergency fund can help you avoid creating expensive debt should you face unexpected expenses.

If you’re trying to decide between saving or paying off debt, one critical factor to think about is the status of your emergency fund. A strong emergency fund, ideally one that can cover three to six months’ worth of expenses, can help you avoid having to incur even more debt should you have a financial set back. If possible, you may want to prioritize building your emergency fund using a savings account that lets your money work smarter (thanks to a competitive interest rate and automated digital savings tools), like our Ally Bank Online Savings Account, while also working to eliminate high interest debt. That way, you can feel confident that you have cash on hand if an unexpected expense occurs.

Are you meeting your employer retirement contribution match?

  • Investing enough to meet your employer match can be a smart way to take advantage of “free” money and get started in the stock market.

As you work hard to pay off debt or build your emergency fund, investing may fall off your radar. But even investing a little bit each month is a smart idea. If your employer offers a match for your retirement contribution, you should especially consider investing enough to take advantage of the full match — otherwise, you could be missing out on free money.

Have you tried microsaving?

  • Microsaving, manually or using technology, can help you save money while prioritizing other financial goals.

Microsaving is a strategy in which frequently you save small (a.k.a. micro) amounts of money. We’re talking two bucks here, 50 cents there. It can be a great way to add savings to a crowded budget, even if it can’t be your number one priority. Using the Surprise Savings booster in our Online Savings Account, you don’t even have to think about microsaving — we’ll do the math and make smart, small transfers for you. That way, you can focus more on investing, paying back debt, or other goals.

What are your goals?

  • Your financial priorities can and will change throughout your life, which may affect how you balance saving, investing, and paying back debt at a given time.

Your personal and financial goals and timelines matter when deciding how to allocate your money, and it’s okay to reprioritize as your goals change. Keep in mind, your budget isn’t set in stone forever, and it should be refreshed as you work toward and accomplish your financial targets.

For example, if you’re determined to buy a home in the next year, you may choose to zone in on saving for your down payment and new furniture for a few months, while only making the minimum payments on any outstanding loans. But once you’ve closed on your new house, you might take that money in your budget and reallocate it to beefing up your monthly student loan payment.

Adjusting your financial priorities is easy to do using our Online Savings Account’s buckets tool, which lets you easily save for multiple goals at once, keeps your savings organized, and gives you a quick visual snapshot of all your financial priorities in one place.

How can you best manage financial stress?

Your mental health and financial health are both extremely important, and oftentimes, the two can influence each other. When you’re trying to decide whether you should prioritize eliminating debt, saving, or investing, think about which will give you the most peace of mind. If the thought of debt keeps you up at night, you may want to work on knocking that out first and foremost. Or if you are more concerned with your long-term finances, like your retirement fund, you might choose to invest some extra cash in your IRA each month.

Bottom line: It’s all about balance.

Remember: Saving, investing, and paying off debt are not mutually exclusive. While you might want to place some extra focus on one, you can do all three at the same time. It’s about finding a balance that strikes a chord with you — so you can put your best financial foot forward, now and in the future.

Save smarter and balance your financial priorities with buckets and boosters in our Online Savings Account.

Learn more.